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7 Dividend Stocks Shoveling Cash to Shareholders - 20104 views
BALTIMORE (Stockpickr) --Income investors take note: Dividend-paying stocks are shoveling cash to shareholders this summer.
Part of that focus on payouts comes from the disconnect we've seen between stock performance and fundamentals in 2011 (for more on that, check out The Dow Discount). By and large, companies are performing at a high level this year, even if stock prices have been under substantial pressure since April. Even if companies don't have direct control over their market prices, they do have control over their dividends -- and they've been hiking payouts en masse for months now.
This year, dividend increases by S&P 500 constituents have already outpaced payouts in 2010. In fact, they reached that level back in April. And even though dividend hikes tend to coincide with earnings season, we're seeing a spike in off-season dividend increase declarations. Those are two very good signs for income investors.
Not all of the companies we're looking at today are dividend stocks in the traditional sense. But investors shouldn't get too caught up on low yields -- there's a whole other side to dividend gains that income investors may not realize; I'm talking about capital gains.
While most people think of dividends and capital gains as mutually exclusive, the data shows that there's a major correlation going on. 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 the stocks that declared dividend increases the previous week. Here's a look at some of several stocks from our list of recent dividend-increasers.
I've been a fan of BB&T (BBT) for a while -- and a 6.7% dividend hike last week only makes the stock more attractive now. BB&T is an $18.7 billion regional bank with a geographic focus in the Southeast and Mid-Atlantic.
Even though the bargain prices of major banking names have taken some of the shine off of the regional banking business, it's still tough to argue with the significantly better business model that smaller banks have right now. Income investors should appreciate the fact that BB&T has already proven its ability to sustain a sizable payout to the Fed.
Like many of its regional peers, BB&T sports hefty double-digit net margins, something that the too-big-to-fail banks can't pull off. While those banks were veering away from retail banking models, BB&T was growing its deposit base and maintaining comparably high lending standards, two factors in this stock's relative outperformance. Today, the big guys are scrambling to return to a focus on retail banking.
Financially, BB&T is well capitalized and shouldn't face too much pressure from current economic headwinds. With a long history of generous dividend payouts, investors should take note of this financial name right now. Last week's dividend declaration puts BB&T's current dividend yield at 2.38%.
Big-box electronics retailer Best Buy (BBY) is working hard to make up for the 8.4% slide in share prices in 2011. Management announced a 6.7% dividend hike last week, raising its quarterly payout to 16 cents per share, as well as a $5 billion share buyback program. Together, those two initiatives could do serious battle with market sentiment challenges -- but investors shouldn't think that they're immune to market drag.
All things considered, Best Buy has been fairly fortuitous in recent years. The company took advantage of massive credit-driven consumer spending trends in the height of the housing bubble, and saw its biggest competitor exit the market when times turned tough.
Now, with spending levels returning to some semblance of normalcy, investors should expect outsized performance from this company. While there's still ample competition in the consumer electronics business, challengers are primarily mainline big-box retailers, who pose price competition but can't compete with Best Buy's positive store attributes.
Best Buy generates substantial free cash -- more than enough to fuel its dividend for the foreseeable future. While not a high-yield play by any means, I think it's reasonable to project that long-term investors will see an enviable yield on their cost basis going forward.
On the other side of the spectrum is electric and gas utility
Duke Energy (DUK) While growth prospects may be somewhat tempered by its already-large size, this stock is a payout machine; Duke's current dividend yield sits at 5.31%.
Duke provides regulated electricity and natural gas service to more than 4 million consumers throughout the U.S. Other units include generation assets in Latin America and commercial power retailing.
Those diversified operations should be attractive to investors because they provide a solid mix of boring, but predictable utility earnings (and dividends) alongside more volatile businesses that can create outsized income opportunities under the right market (and management) conditions.
Last week's dividend hike puts the company's quarterly payout at 25 cents per share.
Duke, one of Cramer's Dividend Stock Winners, was highlighted recently in "6 Stocks to Benefit From Reverse Migration."
Some attention has been taken off of gold miners since metal futures topped in early May - but that may be a big mistake. Precious metals still command historically high prices in the marketplace, and miners with actual production capabilities (real, producing mining projects) are raking in cash. Case in point is IAMGold (IAG), a $7 billion gold miner that produced almost one million ounces of gold last year.
One of IAG's most interesting attributes right now is the fact that the company doesn't hedge the price of its gold. That means that high gold prices (like we're seeing now) can mean a much higher profit margin for IAG than peers. Right now, those profits are substantial.
Financially, IAG is currently sitting on a net cash position and a portfolio of attractive projects with proven output. That strong balance sheet position should help the company float along if a drop in gold prices spurs a decrease in production.
Last week, management announced a 25% increase in its dividend payout, bringing its cash outlay to shareholders up to 10 cents per share.
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Medtronic (MDT) is one of the biggest names in the medical device industry, with nearly $16 billion in sales last year. The company develops a wide array of chronic disease therapeutic devices, from pacemakers to insulin pumps, selling to healthcare institutions and patients worldwide.
That international exposure is particularly attractive because it keeps Medtronic from being beholden to the geopolitical risks of a single country's medical system. It also means that as emerging market patients gain access to a more advanced level of medical treatments, Medtronic is one of the best-situated device makers to benefit.
Because Medtronic holds market-leading positions in most of the medical device categories that it operates in, the company has a distinct advantage over competitors. That's because patients are significantly less likely to seek out value propositions when shopping for tools that could potentially save their own lives. That factor has helped Medtronic maintain impressive balance sheet health, with low debt and massive free cash flows.
Last week, investors got a bigger cut of those cash flows thanks to management's 7.8% dividend hike. That corporate action puts Medtronic's quarterly payout at 24.25 cents per share, a 2.52% yield at current levels.
Real estate investment trusts (REITs) are typically a major contributor to dividend increaser lists, primarily because they're required to adjust their payouts in line with their income generation. As a result, increased income means that increased payouts are going to flow through to shareholders.
Such is the case with Realty Income (O), a retail landlord REIT that owns around 2,500 properties comprising 21.2 million square feet of space spread out throughout the U.S. While many investors view REITs as a way to get exposure to the real estate market, they're not.
Because REITs generally require long-term triple-net leases from tenants, they're very well insulated from the month-to-month or year-to-year ebb and flow of the commercial real estate market. Instead, most REITs are purely income-generation tools that fundamentally have only the most tangential relationship with real estate prices. Realty Income is a good example of that.
Last week, management announced a 0.2% increase in its monthly dividend payout. While that increase may seem small, it's contributing to an already-impressive yield on current share prices. Right now, investors in Realty Income can collect a 5.19% return on shares before capital gains.
Another good example of a dividend-hiking REIT is UDR (UDR), a residential REIT that owns 49,000 apartment homes around key metro areas. UDR's exposure to residential rental properties changes the attributes of this stock somewhat, giving investors slightly more exposure to U.S. real estate prices. Residential leases are generally shorter-term than commercial, and triple-net leases are unheard of for apartments.
Even so, tailwinds have been perking up for the residential rental. The flood of foreclosures in the U.S. (and around UDR's properties) has meant that there's a large base of Americans who are precluded from buying in this market -- and demand for rentals is higher as a result. An 8.1% dividend increase puts the REIT's current yield at 3.25% right now.
For the rest of this week's dividend stocks, 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.