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6 Dividend Stocks for Earnings Season - 16184 views
BALTIMORE (Stockpickr) -- With earnings season under way, let’s take a look at some dividend stocks.
The start of earnings season this week is typically a major positive for dividend investors. That’s because companies tend to group their dividend announcements around their earnings releases. It's a logical combination; after all, those earnings are supposed to be paying for those dividend checks.
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This earnings season, the stakes are raised a bit. The weakness we’ve seen in the broad market in the last quarter has left many investors clawing for returns of any kind. As a result, the return of corporate cash to shareholders has become an especially popular option. A good quarter for dividends hikes will help bolster investor confidence at a fairly crucial time.
Of course, it’s worth noting that dividends and capital gains aren’t mutually exclusive.
Over the last 36 years, dividend stocks outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
With that, here’s a look at our list of recent dividend-increasers.
Corning (GLW) is one of the world’s largest developers of industrial glass and ceramic substrates, the stuff used in everything from computer displays and fiber optic cables to cars and cell phones. That wide portfolio of glass and ceramic technology provides the firm with a fairly diversified revenue stream, avoiding the pitfalls that have knocked around many other manufacturing firms in 2011. Corning’s exposure to some high-growth technology makes it a particularly robust name right now.
Of those growth avenues, one of the most attractive is the mobile device business. Corning’s Gorilla Glass, a proprietary glass that’s designed to be scratch- and impact-resistant, has already been put to work in more than 500 smartphones and tablets. As touch-based devices become the standard for cell phones moving forward, investors should expect Corning’s revenues to benefit considerably.
Financially, Corning is also in strong shape right now. The firm’s balance sheet sports a hefty net cash position, and ample cash generation. At the start of October, management announced a 50% dividend hike that brings Corning’s payout to 8 cents per share -- a 2.2% yield at current prices.
Payroll outsourcer Paychex (PAYX) reported solid fiscal first-quarter results last month in spite of the continued weakness that’s hampered the jobs market. Because this firm provides payroll processing and HR outsourcing services to small and medium-sized businesses, it follows that the firm would have outsized exposure to the staggering 9.1% unemployment rate. But Paychex has managed to trim its costs and widen its revenue net to counteract the earnings drag from jobs numbers.
As half of the U.S. payroll processing duopoly, Paychex helps businesses deal with the paperwork and logistics of paying their people. At present, the firm services more than 560,000 clients. Much of Paychex’s more recent success has come from leveraging its current client base to sell other services that complement its core payroll processing business. Business lines like outsourced HR and 401(k) record management are examples of new ground for Paychex that’s proved successful of late.
Less successful is one of the most low-risk revenue streams for the firm: interest on the float that Paychex carries between getting cash from clients and the withdrawals from those clients’ employees. Low rates have trimmed that float revenue considerably -- but ultimately that float income is a small enough portion of the firm’s earnings power that it doesn’t diminish the value in this name.
This week, management announced a 3.23% increase in Paychex’s dividend payout, bringing the company’s total yield to 4.53%.
Paychex is a holding in Generation Investment Management's portfolio.
Maintenance and repair product distributor Fastenal (FAST) is having a strong year despite the bearish pressure that’s squeezed the broad market in 2011. Year-to-date, shares have climbed 12.5% -- Fastenal’s dividend payout notwithstanding. That dividend is on the rise right now; management increased their payout to shareholders by 7.69% this week, ratcheting its quarterly dividend up to 13 cents per share.
Fastenal’s core business comes in providing a massive catalog of maintenance, repair, and construction products to companies worldwide. At its core is the firm’s namesake fastener business, which currently boasts more than 400,000 products; fittingly, fasteners make up more than half of the firm’s sales. Competition is high for firms’ maintenance and repair dollars, and Fastenal’s geographic footprint is its biggest weapon to combat customer attrition. With more than 2,400 physical locations, Fastenal is best able to quickly fulfill orders and keep customers loyal.
With no debt on its balance sheet and more than $115 in cash and investments on hand, Fastenal’s financial health is excellent. The firm’s recent dividend hike equates to a 1.54% yield at current levels.
Senior Housing Properties Trust
Senior Housing Properties Trust (SNH) is a $3.25 billion health care REIT that owns more than 300 senior care facilities and medical offices spread throughout most of the U.S. From a long-term standpoint, the trust is well positioned -- as the average age in the U.S. increases dramatically, demand for senior housing facilities is expected to increase in kind. That means that SNH should be able to find organic growth easily going forward.
As a REIT, Senior Housing is essentially an instrument that’s designed to generate income for investors. That’s contrary to many investors’ assumptions that REITs are good ways to get exposure to the value of real estate. They’re not. Instead, financial arrangements like long-term, triple-net leases mean that SNH gets paid a predetermined lease rate with built-in inflation increases, and tenants worry about property taxes, maintenance, and everything else.
The result is a firm that’s doesn’t necessarily track real estate values (because it’s only exposed to them when it’s re-leasing properties) -- but instead pays out a sizable distribution to shareholders. Last week, management announced a 2.7% increase in its payout, bringing it to 38 cents per share. That’s a 7.17% yield at current levels.
This name is a solid core holding for income investors right now.
It’s been a fairly flat year for chemical manufacturer RPM International (RPM). With its now-4.12% dividend yield factored in, the firm’s similarly sized price drawdown year-to-date is essentially zeroed out. RPM’s core business is manufacturing chemicals used in the construction business -- well-known names such as DAP and Rust-Oleum are a key part of the firm’s product portfolio.
Not surprisingly, that exposure to construction has proven challenging for RPM in recent years. Shares are still down from the levels that they reached in early 2008.
Despite that depressed share price, dividend investors should be aware of this name. After all, RPM is one of the few companies out there that can boast more than 37 years of consecutive dividend increases. A sound balance sheet should help that trend continue for the foreseeable future, even after last week’s 2.4% dividend increase.
RPM is one of the top-yielding chemicals stocks.
It has been a good year, on the other hand, for shareholders of Targa Resources (TRGP), the small-cap general partner of midstream energy MLP Targa Resources Partners (NGLS). Shares of the firm have climbed more than 18% year-to-date.
That makes for a pretty attractive operating history for TRGP. The firm only went public back in 2010; until then, NGLS was the only way to get exposure to the business. The firm has been doing substantial restructuring in recent years, transferring all of its operating assets over to NGLS, and preferring instead to make TRGP solely a general partner stake in the better-known firm. It’s a move that should add considerable operating scale to the MLP -- and improve the fortunes of both sets of stakeholders.
Last week, TRGP’s management announced a 6.03% dividend increase, bringing its total yield to 3.88% at current prices.
To see these dividend plays in action, check out the Dividend Stocks for the Week portfolio on Stockpickr.
And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.