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7 Dividend Stocks That Want to Pay You More Cash - views
BALTIMORE (Stockpickr) -- Dividend junkies rejoice: In the last year, the S&P 500 has seen its total dividend payout increase by 16.4%. Even the staid stocks of the Dow have ratcheted their dividends 12% higher in the past 12 months. Those are some impressive increases for the folks who rely on dividend income.
That’s even more impressive when you compare the payouts on dividend stocks with the negative real yields flight-to-quality investments like treasuries are offering right now.
In years past, plenty of investors have ignored dividends, preferring instead to look for companies that could offer up big capital gains. Now, with the crash of 2008 still somewhat fresh in investors’ memories, people are realizing that dividend stocks can be an attractive place to allocate their portfolios. Better yet, folks are starting to realize that dividends and capital gains aren’t mutually exclusive. In fact, they go hand in hand.
So far in 2012, the S&P has rallied 8.61% in price alone. But with dividends factored in, those returns climb to 9.08% -- in only two full months. That means that if the S&P got stopped dead in its tracks for the rest of the year, dividends would make up a full third of total returns for the year. Given the strength of Mr. Market’s performance this year, that’s quite a feat.
But it’s also not uncommon: 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.
Pull out your cell phone -- Qualcomm (QCOM) probably had something to do with it. The $107 billion semiconductor and wireless technology firm developed the patents behind standards like CDMA, 3G, and 4G -- and the firm makes money on every device that’s built to work over those standards. So while mobile device makers battle it out in a highly competitive industry, Qualcomm makes money no matter whose phone you buy.
R&D is the lynchpin of Qualcomm’s business. It fuels the licensing revenue that the company generates (around 3% to 5% of retail prices for each handset sold), as well as the more competitive semiconductor business. As smartphone sales continue to rocket, the firm should benefit even more by providing its next-generation chips for OEMs such as Apple (AAPL) and HTC.
Qualcomm is in stellar financial shape, with a massive amount of cash on its balance sheet and no long-term debt. That dry powder should help the firm keep paying out R&D costs as well as a modest dividend payout. On Tuesday, management announced a 16.28% dividend increase that brings QCOM’s quarterly dividend to 25 cents per share.
Consumer product giant Colgate-Palmolive (CL) is having a fairly flat year in 2012. Shares of the $45 billion toothpaste and pet food maker are only up 1.7% year-to-date, a far cry from the performance that investors have been able to wring out of the broad market.
But in spite of the tepid returns, there’s reason to pay attention to this stock right now.
Colgate-Palmolive owns some of the biggest household product brands in the business, from namesake Colgate and Palmolive to Softsoap, Speed Stick, and Hill’s Science Diet pet food. That diverse group of staples means that the firm is able to attract a sticky customer base that’s relatively resistant to pricing headwinds. Massive international diversification means that the firm has exposure to increasing demand overseas; the flip side is that the CL suffers when a strong dollar makes profits earned in other currencies look less appealing.
CL is a prototypical blue chip, and it has a balance sheet that reflects that. The firm generates a significant amount of cash -- and pays out a 2.47% dividend yield. That yield increased yesterday thanks to a 6.9% dividend hike. The move pushes CL’s quarterly payout to 62 cents per share.
From ships and armored vehicles to corporate jets, General Dynamics (GD) is a go-to company when it comes to big-ticket vehicles. The firm is a major defense contractor (operations which contribute more than 70% of revenues) and also owns Gulfstream, a private jet manufacturer.
On Wednesday, GD announced an 8.51% dividend increase, bringing the firm’s payout to 51 cents per share. That’s a 2.83% yield at current price levels; General Dynamics is one of the top-yielding aerospace and defense stocks.
There have been a few black clouds lingering over General Dynamics over the past few years. For starters, the global recession sapped away demand for Gulfstream’s high-priced jets, an area where recovery has still been somewhat tentative. At the same time, concerns over possible defense budget cuts could impact GD’s ability to get lucrative contracts here at home.
But while those black clouds have impacted shares, there’s ample reason not to ignore this stock.
For starters, Gulfstream’s business is defensible thanks to a multiple-year backlog and a niche in building larger private jets. Adding to that, the defense business involves mission-critical projects that the Pentagon can’t just summarily cut. With international sales to allies as a stopgap, GD should be able to continue its fundamental performance into 2012.
For income investors looking for exposure to defense, GD is a solid core income option.
Mead Johnson (MJN) has seen some ups and downs in the last few months, but that hasn’t stopped the pediatric nutrition firm from generating gains of more than 15% this year. Coupled with a 15.38% dividend increase announced last Friday, MJN is well positioned to continue outperforming the broad market in 2012.
Towards the end of 2011, there was some concern that the firm’s Enfamil formula could have been tainted with Cronobacter bacteria, leading to the death of one child and the hospitalization of others. But the FDA and CDC effectively cleared the firm after not finding any traces of the bacteria in their testing. Although that risk knocked shares significantly lower to start the year, MJN has made up lost ground and then some in the last couple of months.
Customer stickiness, government subsidies, and international growth are three key reasons why Mead Johnson looks attractive right now. With each of those tailwinds working to propel shares, the firm’s performance thus far could certainly have further to run.
While a 1.51% yield hardly makes MJN a core income holding, the payout is a nice added for investors who were willing to buy shares on other merits.
Looking at Applied Materials’ (AMAT) chart lately, you wouldn’t necessarily know that the firm is involved in two of the most challenging industries out there right now: semiconductors and solar. Indeed, the past few years have been challenging for both business units, as dropping demand, high competition, and struggling investor sentiment sent shares lower.
While the stock has recovered, it’s not out of the woods yet.
One benefit for AMAT is the fact that it’s the standard bearer in the semiconductor equipment business, not a chipmaker itself. So while demand has been sluggish for semis in the past couple of years, low rates have at least provided some incentive for manufacturers to invest in their equipment, which has kept revenues climbing since this stock’s 2009 sales trough.
Solar has faced a few more headwinds. With many solar stocks in worse shape financially, manufacturers haven’t had the same wherewithal to retool factories with AMAT’s equipment.
Despite challenges, AMAT still has a phenomenal balance sheet that sports a solid net cash position, and the firm has expanded both sales and margins commendably in the last two fiscal years.
A 12.5% dividend increase brings the firm’s yield to 2.95%. This firm makes a good core income holding for investors who are wiling to wait out any near-term capital risks.
Applied Materials shows up on a list of 10 Top Value Stocks With Big Gains in 2012.
As the biggest office supply company in the world, Staples (SPLS) enjoys some scale advantages that its peers don’t. The firm boasts more than 2,000 stores in 25 countries, as well as an absolutely massive online presence, weighing in as the second-largest online retailer in the world by sales.
Right now, the firm’s biggest business is delivering supplies straight to North American businesses -- but North American retail still makes up a huge chunk of the firm’s total revenues. The upside to that is the idea that Staples has some room for upward expansion in its international operations, an area that’s already been fuelling reasonably strong growth lately.
In the shorter-term, improved efficiencies should have the biggest positive impact on Staples’ bottom line.
The firm is in solid financial shape -- and it throws plenty of cash off from its operations. For investors, that’s helped to fuel the 10% dividend increase that management announced on Tuesday. The move brings Staples’ payout to 11 cents per share, a 2.86% yield on the firm’s current share price.
Host Hotels & Restorts
Luxury hotel firm Host Hotels & Resorts (HST) own more than 120 properties spread throughout the world. The firm is structured as a real estate investment trust, a setup that means that the company is obligated to pay out the vast majority of its income to shareholders in the form of dividends.
As a result, the firm announced a 20% dividend increase yesterday, bringing its payout to 6 cents -- that’s a 1.56% yield.
It’s good to think of REITs as income vehicles rather than real estate investment vehicles. Typically, landlord REITs enter into long-term triple-net leases that strip most of the market risk away from them and throw predictable income off to owners. That’s not exactly the case with Host Hotels. Because the firm owns hotels itself, it’s much more correlated with the economy than a typical landlord REIT would be.
Lately, that hasn’t been a particularly good thing. While Host has made leaps and bounds at improving its financial situation following the crash, it still hasn’t posted a fiscal profit since. Investors looking for REIT exposure should stick with the higher yields and lower risks of commercial landlord REITs first.
Host is one of the top holdings at Ken Heebner's Capital Growth Management.
To see these dividend plays in action, check out the Dividend Stocks for the Week portfolio on Stockpickr.
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-- 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.