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7 Dividend Stocks Giving Out More Cash - 17605 views
BALTIMORE (Stockpickr) -- With stocks looking to move considerably lower into the weekend, the dividend narrative hasn’t changed a whole lot in August. Right now, dividends are the only connection between corporate fundamentals and fear-induced stock prices in the market. If you’re a fundamental investor, a core holding of income stocks is a must-have to eke some sort of gains out of this market.
Right now, the view from Wall Street couldn’t be any more different than the view from the desks that lead most of the Fortune 500. Corporate profits are at an all-time high for the S&P 500 and the Dow Jones Industrial Average, and market valuations sit right around the same levels we saw back in October 2008. At the same time, stocks are embarking on the second leg of a crash that continues to push stock values lower.
Clearly something’s out of synch right now.
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For dividend investors, this is a slightly less scary environment. That’s because, with yields sitting higher than they’ve been in years, people who buy dividend payers are collecting cash while they wait for market prices to eventually realign with the real world.
And there’s a little more to it than that. Historically, dividend-payers have made a whole lot more money for investors than their non-paying peers. 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 a study from NDR.The numbers are even more compelling when looking at companies that consistently increase their payouts.
That's why, each week, we take a look at a select group of the stocks that declared dividend increases the previous week. Here's a look at our list of recent dividend-increasers.
Despite a turbulent year for News Corp. (NWSA) shareholders, 2011 has been a good year for owners of this stock – shares have climbed in value by more than 11% since the beginning of the year, versus a decline of nearly 10% for the S&P 500. That S&P outperformance is only set to increase this year thanks to management’s decision to hike their semi-annual dividend payouts to 9.5 cents per share, a 27% increase over the firm’s previous payout.
Tumult has surrounded News Corp. in the last few months thanks to the continued drama unfolding over the UK’s phone hacking scandal -- a scandal that pushed the firm to close down one of its longest-running media properties. Even though the news is significant, it’s considerably less so for News Corp.’s fundamental performance. This stock is likely to continue to see substantial growth regardless of the latest update on the scandal.
That’s thanks in large part to the largely diversified media business that News Corp. operates in. From broadcast and cable channels and film studios to magazines and newspapers, NWSA has its hands in nearly every facet of the media business. As a result, the firm has built up a massive content network to fuel its crown jewel cable channels, and plenty of opportunities to bring that content across business lines still have yet to be exploited. News Corp.’s digital arm has been considerably less attractive for the last few years. The company is wise to unload underperformers such as MySpace.
News Corp. is one of TheStreet Ratings' top-rated media stocks.
Regional banking heavyweight SunTrust Banks (STI) rings in as last week’s biggest dividend increaser thanks to a 400% increase in its quarterly payout. Like most other large banks, SunTrust has had its hands tied by the Fed in setting dividend payouts -- with TARP funds still in STI’s own coffers until earlier this year, the Fed’s role was to ensure that the bank didn’t get into further financial trouble by overextending payouts.
Now, with those funds paid off (thanks to a dilutive offering), the Fed is looking more favorably on dividend hikes from SunTrust.
As one of the largest regional banks in the country, SunTrust captures a meaningful chunk of deposits in the Southeast, where the Atlanta-based bank boasts the majority of its operations. That regional exposure has previously been a less than appealing factor for SunTrust, as outsized lending in Florida exploded in management’s face when the bottom fell out of the market. For now, it appears that the most toxic debt has been written off from STI’s balance sheet.
While this stock does have some positive attributes, SunTrust has traditionally been a laggard in the regional banking business. This stock’s margins, typically one of the most appealing attributes of a regional bank, are far below those of peers. And the stock’s 400% dividend hike still only puts its yield at 1.13%. The increase is a step in the right direction, but there are more attractive regional banks out there; BB&T (BBT) and M&T (MTB) are just a couple.
SunTrust shows up in the portfolio of John Paulson's Paulson & Co. as of the most recently reported period.
Torchmark (TMK) is one of the most fundamentally-attractive insurance companies on the market today. The firm sells life and health insurance, a business that’s hardly been devoid of risk in recent years, but even with the threat of a second recession rearing its ugly head, that’s not a major concern for Torchmark.
The main reason behind that is the fact that this stock actually generates profitability from its underwriting alone -- as such, it’s not beholden to the market to generate gains that offset insurance losses. That lack of leverage means that the company is much less susceptible to market hiccups than most peers are. Even though most insurance products have been commoditized in recent decades, that financial health could be a deciding factor when consumers and organizations are looking for an insurer.
Torchmark increased its dividend payout by 9.1% last week. That brings its quarterly dividend to 12 cents per share, a 1.35% yield at current levels. While this stock may not qualify as a core income holding on the count of its low yield, investors seeking exposure to attractive financials should give Torchmark a second look.
On the high yield side of things, petroleum storage and transportation MLP Buckeye Partners (BPL) is the biggest opportunity out there right now, with a 6.6% yield. That yield is just a little bit higher thanks to last week’s 1.3% dividend hike (and thanks to the decline in share prices of the last month).
Buckeye owns 5,400 miles of oil pipelines and 69 oil terminals in the United States, together creating storage capacity of 53 million barrels of oil. The firm also operates another 2,600 miles of oil, gas, and chemical pipelines for third parties.
As a master limited partnership, Buckeye was designed with dividends in mind. This stock’s goal is to produce cash from its operations, then transfer the vast majority of them to shareholders under tax-free status. Investors looking for a solid core holding would do well to keep an eye on this name.
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Lawn care stock Scotts Miracle-Gro Company (SMG) is the name behind some of the most well-known lawn and garden products on the market today, including the firm’s self named Scotts and Miracle-Gro lines. Scotts’ fortunes are invariably tied to the housing market, so it’s no surprise that shares have taken their knocks as a second round of economic uncertainty springs forward.
That said, investors shouldn’t count this mid-cap play out just yet.
Scotts has long taken the lead in lawn and garden chemicals, a lucrative business that easily affords the company double-digit margins when times are good. When times are less good, so is Scotts’ profitability. To combat that, management has undertaken manufacturing private label brands for some of the firm’s biggest retail customers. Although it’s possible that private label offerings could cannibalize the premium-priced Scotts-branded products on store shelves, it’s a risk worth taking as consumers become more cost conscious about luxuries like lawn care.
The company increased its dividend payout by 20% last week, bringing its payout to 30 cents per share -- an attractive 2.72% yield.
Scotts is one of the top-yielding chemicals stocks.
Dividends haven’t been the last bastion of gains as stocks have sold off -- the largest growth has come in flight-to-quality assets like gold. Kinross Gold (KGC) combines the best of both worlds.
This $18 billion gold miner is currently sitting on considerable gold and silver reserves, two metals that have seen prodigious rallies in the last couple of years amid a declining dollar and scary downside volatility in stocks. Kinross is a mature miner that generates around 90% of its revenues with gold sales -- sales that aren’t marred by hedging against commodity price fluctuations. That makes Kinross an excellent option for investors who are looking for pure-play exposure to gold right now.
That said, miners haven’t been a great alternative to the metal in the midst of this selloff. Instead, most mining operations have slid alongside the broad market, even as their products have climbed in value to record highs and extraction costs fall. It’s the pinnacle example of this out of synch stock market right now.
That said, that factor makes this stock all the more likely to be a big beneficiary of a snapback when investors realize this mispricing. Last week, management decided to call attention to the situation with a 20% dividend hike. The move puts the firm’s dividend at 6 cents per share.
Ritchie Bros. Auctioneers
Ritchie Bros. Auctioneers (RBA) is the largest auctioneer for industrial and agricultural equipment, an attractive business despite the current economic uncertainty. With operations in more than 25 countries, Ritchie Bros. benefits from a geographic footprint that most peers can’t match -- and exposure to some of the more attractive emerging market countries whose appetites for industrial and agricultural equipment are on the upswing.
Because Ritchie Bros. offers no-reserve auctions of used equipment, the firm’s sales are more likely to attract cost-conscious bidders who don’t want to bear the expense of a new purchase. That factor bodes well for the firm regardless of their economic conditions. As a result, historically, revenues haven’t changed materially during downturns, instead, customer demographics have. This business is less cyclical than it may seem.
Last week, the firm announced a 7.1% dividend increase that rings its payout to 11.25 cents per share. That’s a 2.05% dividend yield at current levels.
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.