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BALTIMORE (Stockpickr) --
In spite of the negative tenor that stocks have shown investors in 2011, it’s been a strong year for dividend stocks. That may seem surprising, but the statistics do a better job of telling the whole story: While the S&P 500 is down 3.3% on the year as I write, the S&P 500 Dividend Aristocrats Index has already generated positive gains of 4.79%.
You read that right. Investing in a portfolio of stable dividends would have produced positive gains that knocked flight to quality investments, like treasuries, out of the water.
This quarter in particular, as investors have struggled with broad market price swings, S&P 500 constituents have paid out the biggest aggregate dividends in more than three years. That’s a very positive trend considering the fact that corporate America is sitting on a record hoard of cash right now. While anxious investors flee from stocks, now’s the perfect opportunity to find some dividend bargains in the broad market.
In the past, that’s been a pretty good bet: 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 seven of the stocks that hiked payouts in the last week.
The largest firm to hike its dividend payouts in the last week is also one that’s struggled the most to move higher in 2011. I’m talking about General Electric (GE), the $175 billion conglomerate behind everything from jet engines to dishwashers.
It’s been a challenging operating environment for GE in 2011, and share prices show it; the stock had slid more than 8% year-to-date.
One redeeming factor for GE has been its dividend. With a yield of just over 4%, GE is siphoning considerable cash flow to investors, a welcome feature of this stock. Last week, management opted to increase its payout to 17 cents per share, a 13.3% increase.
Even though GE holds a leading role in most of the businesses that it operates in, the size of GE Capital (the firm’s lending arm) is a major blemish on an otherwise attractive blue chip. Last year, GE Capital contributed around 25% of the firm’s profits -- making it a crucial element of the business. A continued weak economy could cause issues for GE Capital.
I still think that this stock makes for a strong core income holding (particularly with its yield), but it’ll be important to keep a close watch over GE’s financial arm for the next couple of years.
It has been a good year, on the other hand, for Pfizer (PFE), one of the top-yielding drug stocks. Shares of the pharmaceutical giant have produced total returns of 24.13% in 2011, thanks in no small part to a 4.16% dividend yield in shares -- a payout percentage that’s even bigger for investors who bought shares at lower prices earlier this year.
Pfizer is continuing to ramp up its shareholder returns even now: on Monday, the firm announced a 10% increase in its quarterly dividend.
As the world’s largest pharmaceutical firm, Pfizer has considerable scale advantages, but it’s also got a big target on its back. Patent dropoffs are a major concern for the company as well -- like other big pharma peers, Pfizer has a number of patent expirations in the next few years that will shake profitability. While the acquisition of Wyeth in 2009 diversified the combined firm’s revenues and product pipeline, investors should be aware that an encroaching revenue shortfall is part of the reason for Pfizer’s hefty yield.
While the company financed the Wyeth acquisition with considerable debt, it did so at historically low rates and with plenty of cash to offset any debt service needs in the foreseeable future. That means that this firm’s dividend payout should continue as planned at this point in time.
As a core income holding, Pfizer still makes sense -- just be aware of its patent concerns.
I also featured Pfizer recently in “5 Big Stocks to Trade for Gains.”
Boeing (BA) made news earlier this week when it was announced that the company would be getting the biggest order in its history from Southwest Airlines (LUV), a $19 billion order for 208 of the firm’s next-generation 737 aircraft. The news is a big boost to Boeing’s civil aviation division, which has been in the headlines for making conspicuous schedule misses on its 787 Dreamliner.
On Monday, Boeing, one of the highest-yielding aerospace and defense stocks, announced a 4.76% dividend increase for shareholders, ratcheting its quarterly payout to 44 cents per share. That’s a 2.5% yield at current prices.
Competition is fierce for Boeing -- the firm faces the likes of Airbus on the civil end of the spectrum, and Lockheed Martin (LMT) on the defense side. While that competition is a concern, the technology in the firm’s pipeline and a storied brand name should keep aerospace buyers knocking on its door.
Rising fuel costs are a positive for Boeing, even as its airline customers struggle. That’s because newer aircraft, like the 787 Dreamliner, are dramatically more efficient than comparable planes (the Dreamliner is 20% more efficient than the 767, for instance), making the cost of upgrading a fleet much more justifiable. A 20% decrease in airlines’ fuel bills would be a major coup for carriers -- and a coup for Boeing’s fleet sales.
Boeing is one of SAC Capital's top holdings as of the most recently reported period.
Investment firm Franklin Resources (BEN) is the fifth-largest asset manager in the U.S., with more than $675 billion in assets under management. That asset number has grown nearly 50% in the past two years, buoyed by Franklin’s niche expertise in the fixed income business, an asset class that’s been performing exceptionally well of late.
For a firm like Franklin, brand is everything -- and the company has done a good job of establishing a handful of trusted brands for retail investors. That’s a big part of this firm’s recent successes.
Because Franklin Resources maintains close relationships with more than 130,000 financial advisors, the firm has a direct line to retail investors’ ears. Retail investors, incidentally, still make up the lion’s share of Franklin’s AUM – exposure that makes the firm’s asset management business somewhat more volatile. Because retail investors aren’t as sticky as institutional clients, Franklin could see investors flee when times are tough. By that same token, that volatility has provided the firm with huge asset growth in the last couple of years.
Financially, Franklin Resources is in solid shape, with a massive net cash position and huge free cash flow generation from its recently-ballooned AUM. Scale means quite a bit to an asset manager, and that’s reflected in Franklin’s nearly 20% net margins. Management’s decision to hike its dividend by 8% leaves the firm with a 1.16% yield.
While this stock has considerable tailwinds, until it starts sharing more cash with shareholders, it’s not a core income holding.
Franklin shows up on a recent list of 10 New Dividend Aristocrats for 2012.
When times are tough, think trash. Not only are trash stocks recession-resistant, they’re known for paying out considerable cash to shareholders in the form of dividends. And in the world of garbage, aptly named Waste Management (WM) is a name that’s worth plucking from the heap.
With more than 270 landfills, a massive fleet of collection trucks, and a huge geographic footprint, Waste Management is the largest waste services provider in the country. It’s also one of the most innovative; the firm owns nearly two dozen waste-to-energy plants spread across the U.S., turning the trash it collects into salable fuel and electricity for power utilities and industrial facilities.
WM’s willingness to invest money into new uses for garbage is an attribute that should benefit shareholders immensely in the long-term.
Even if a slow economy has reduced demand for Waste Management’s services, the firm continues to operate with deep margins and more than reasonable financial health. WM’s 4.41% dividend increase last week brings the firm’s total payout to 35 cents per quarter, ratcheting its yield to 4.4% right now.
Office REIT Boston Properties (BXP) owns 121 buildings and a handful of other real estate assets that combine to make up nearly 40 million square feet of leasable space. Because BXP’s properties are focused around major markets, the firm has been able to keep occupancy high in spite of softness in the commercial real estate space.
Also helpful is the REIT’s practice of long-term triple-net leases, which keep BXP free of tax and maintenance obligations, leaving the firm free to sit back and collect cash.
Because BXP holds a significant amount of undeveloped land in its portfolio, the firm should be able to generate meaningful growth -- even if it means parting with some balance sheet liquidity to build new properties and finance the expansion.
While this REIT doesn’t offer the highest payouts right now (it pays a 2.1% yield at current prices), last week’s 10% dividend hike keeps it competitive with similarly positioned names.
I also featured BXP recently in “5 Heavily Shorted REITs That Could Pop.”
Like REITs, utilities are known for their income generation potential. California-based Edison International (EIX) is no exception. This $13 billion firm is both a regulated utility and an unregulated merchant generation company, a combination that is beneficial to investors when utility rates are being held low, but that usually comes at the cost of income: Payouts tend to be lower for utilities with large generation operations.
Since Edison operates in a geographically attractive region where electricity demand is high and supply is limited, the firm should be able to generate stable growth by building out its infrastructure. Regulators pose the biggest uncertainty for this firm.
Last week, EIX announced a 1.56% increase to its dividend, bringing the firm’s yield to 3.32%. Edison isn’t a shocking bargain right now, but it is a middle-of-the-road utility holding worth owning for investors who are seeking exposure to the sector.
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.