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6 Dividend Stocks That Want to Pay You More Money - views
BALTIMORE (Stockpickr) -- $250 billion. That’s how much JPMorgan’s Thomas Lee expects companies in the S&P 500 to return to shareholders in 2012 in the form of dividends and share buybacks. That’s would be a record amount of cash being shoveled back to shareholders this year -- and Lee’s estimate is on the low side.
There are a lot of factors that support increased payouts to continue in 2012. Firms have record cash on hand right now -- S&P firms alone have $1 trillion in the bank -- and payout ratios trail their historical averages. So it stands to reason that investors could find more cash flowing their way over the course of this calendar year.
As far as returns are concerned, that’s a big deal.
Over the last 36 years, dividend stocks have 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.
That’s why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here’s a look at six stocks that hiked payouts in the last week.
Well, it finally happened.
By far the biggest news in the dividend world in the last week has been Apple’s (AAPL) decision to start paying out a dividend. On Monday morning, the firm announced a $2.65 per share dividend payout, giving the firm a 1.8% yield at current price levels.
While Apple’s yield isn’t massive, the sheer amount of cash it’s going to be paying out is -- Apple’s new annual payout is bigger than the market values of 40% of the S&P 500 and makes the firm the second biggest dividend payer on the index behind AT&T (T). That should help deal with the close-to $100 billion burning a hole in the Cupertino-based firm’s pocket.
Apple boasts a massively successful business that’s managed not only to develop some of the most popular consumer electronics on the market today -- but that’s also managed to sell them with extremely favorable terms. Apple collects far more for each iPhone sale than rivals do for their competing offerings, and Apple sells more phones. While the onus will be on Apple to keep innovating in order to secure such attractive subsidies, the firm hasn’t dropped the ball yet.
From a valuation standpoint, Apple is still not a particularly expensive stock, despite its status as a momentum name; to date, the price increases in Apple have been met by fundamental improvements in this stock.
While structural issues in the market could cause problems because of Apple’s sheer size, this stock is worth owning. There’s still plenty of dry powder on its balance sheet right now.
Charge card issuer American Express (AXP) is having a great year in 2012 -- the firm’s shares have already risen more than 21% since the first trading day in January. And management is working on directly increasing shareholder returns thanks to the 11.1% dividend hike that was announced yesterday. The move brings Amex’s payout to 20 cents per share, a 1.26% yield.
In a world where attracting credit card dollars is highly competitive, American Express has taken the path less traveled and asked consumers to pay for the privilege of using its flagship charge card products. In exchange, cardholders get benefits and services that aren’t offered by competing issuers -- it’s a model that’s helped Amex capture far more dollar volume per customer than rival networks.
That’s not to say that the firm hasn’t embraced the more attainable credit model; by opening its network to new issuers, Amex has been seizing the opportunity to grow its dollar volume with limited risk and cost.
Financially, American Express is in strong shape thanks to a business that throws off significant cash flows. While a 1.26% yield hardly makes Amex worthy of consideration as a core income holding, investors looking for a less commoditized alternative to Visa (V) or MasterCard (MA) should give AXP a second look.
Defense contractor Raytheon (RTN), one of the top-yielding aerospace and defense stocks, develops and sells everything from missile systems to technical services to the U.S. government -- a business that generates almost 90% of the firm’s annual sales. The balance comes from consulting and sales to smaller governments.
Like most of its peers, Raytheon has been plagued by the risk that Uncle Sam will look to trim his massive budget shortfalls by taking cash from the defense budget, a move that would be detrimental to defense contractors’ revenues. At this point, however, those risks remain unsupported by Congressional action. With the U.S. military likely to remain actively engaged in conflict for the foreseeable future and many of Raytheon’s offerings (like the Patriot missile system) consumable, the firm shouldn’t face the revenue drop-off that some investors are envisioning.
Meanwhile, management is looking for ways to diversify revenues away from the defense department. One of the most successful has been international sales to allies, which have seen double-digit growth in recent years.
On Wednesday, management announced a 16.28% dividend increase, bringing Raytheon’s payout to 50 cents per share. That eighth consecutive annual dividend hike puts RTN’s yield at 3.3%, making the firm a solid option for a core income holding in the defense sector.
Raytheon shows up on a list of JPMorgan's 24 Stocks That Are More Attractive Than Apple.
Housing REIT UDR (UDR) owns more than 40,000 apartment homes spread across the country. California, Washington, D.C., and Florida make up the lion’s share of UDR’s business, contributing close to 70% of net income. Two of those markets (California and Florida) got hit particularly hard by the housing market collapse in 2008, resulting in increased demand for rental units. The other, D.C., has perennially high rental demand.
UDR’s status as a REIT means that the firm was essentially designed to generate income for its shareholders: the company is legally obligated to pay out the vast majority of income in the form of dividends. One key difference between this and other REITs is UDR’s multifamily housing exposure. Unlike commercial REITs, which can enter into extremely long-term leases, housing is considerably less sticky and comes with protections tipped in the favor of tenants. While those factors work against UDR, they’re by no means deal breakers right now.
In fact, UDR is in solid financial shape, evidenced by the firm’s decision to increase its dividend payouts by 2.33%. While the actual percentage increase is the smallest on our list, it tacks onto an already-high yield that makes this stock a good supplemental income holding for investors looking for diversification from commercial REITs. Currently, UDR offers investors a 3.49% payout.
UDR shows up on a recent list of 10 Stocks That Show the Real Estate Boom Has Arrived.
Fulton Financial (FULT) operates a handful of community bank brands centered in the Mid-Atlantic region, comprising 260 branches between them. Despite the different brands under the Fulton umbrella, the firm boasts similar operations to any mid-sized regional bank; margins weigh in close to 20% and the firm boasts reasonably strong financial health.
While Fulton’s model isn’t the norm in the regional banking business, it’s an attractive structure because it enables the firm to distance itself from the big-bank negatives without sacrificing the financial wherewithal of a larger organization. Increased focus on fee-based revenues through the firm’s centralized wealth advisory arm is a major positive for shareholders, especially given the prolonged low interest rates that we’re facing right now.
On Tuesday, Fulton announced a 16.67% dividend increase, bringing its payout to 7 cents per share. A 2.31% dividend yield makes Fulton a reasonably strong payer in the banking business. Even so, the firm’s small-cap status makes it more appropriate as a supporting player to a core income holding in a bigger regional bank.
As of the most recently reported period, Fulton is one of David Dreman's top holdings.
BioMed Realty Trust
Niche REITs have a lot going for them. Combining the commercial REIT structure with a specialized niche means that customers are stickier and facilities are able to command higher rents per square foot than generic retail space can ask for. A perfect example is BioMed Realty Trust (BMR), a REIT that owns 12.2 million leasable square feet of lab and office space for life sciences firms.
It’s important to think of BioMed more like an income generation tool than a way to get exposure to the commercial real estate market. The majority of BMR’s properties are triple-net leased, which means that the firm isn’t on the hook for things like property taxes, maintenance, and insurance. Instead, it collects stable, predictable rental revenues each month. And because leases generally range from five to 15 years, its tenants are stickier than a residential REIT like UDR.
Last week, BMR announced a 7.5% increase in its dividend, bringing the firm’s total annual yield to an impressive 4.52%. BMR is a reasonable choice for a core income holding, but I like it even better as a component of a niche REIT portfolio.
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.