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Dividend Stocks: Aflac, Torchmark - 8404 views
As the market continues to sway, investors are turning to dividend stocks for a chance to generate returns in 2010.
Although nearly three-quarters of firms have beaten earnings expectations this quarter, you wouldn’t know it from their price charts. The S&P 500 is down nearly 4% in the last three months. But while stock performance continues to languish, those upbeat earnings are fueling dividend spending at companies bent on returning capital to shareholders.
With that in mind, it’s time to take a closer look at few of the companies that announced dividend increases last week. Now is as good a time as ever for dividend plays, with yields as high as ever on some of the world’s most attractive stocks.
Historically, dividend stocks are a good place to be. 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. And right now, companies that are willing to part with cash in arguably tough times are worth a second look.
That said, here’s a look at this week’s dividend stocks.
Like the market itself, Aflac (AFL) has seen its share of volatility this year, swinging wildly on news of bad bets on European debt, better-than-expected income, and -- of course --dividends. The $21.92 billion insurance company announced a 7.1% dividend increase last week, hiking quarterly payouts to shareholders to 30 cents per share.
Aflac stands out from most other insurers because of its focus on supplemental health and life insurance policies. By eschewing more traditional insurance models, Aflac has been able to carve out an incredibly profitable niche that delivered double-digit net margins in the second quarter of 2010.
The vast majority of Aflac’s business is in Japan, where extremely high customer retention, an aging population, and a favorable regulatory environment helped make Aflac a key supplemental insurer. The company’s favorable balance sheet should help to secure the company’s payouts in the future.
That’s what shareholders of the Goldman Sachs Large Cap Value Fund (GSLIX) are hoping for. The fund, which holds Morningstar’s four-star rating, is one of Aflac’s largest institutional owners. Other positions include PepsiCo (PEP) and General Electric (GE).
Another insurance standout that increased its shareholder payouts last week is Torchmark Corporation (TMK). The company opted to raise its payouts 6.7% to 16 cents per share.
Torchmark is one of the most profitable firms in the insurance industry, a feat the company accomplished by focusing exclusively on the most profitable, and easy to acquire, customers. Like Aflac, Torchmark is in the supplemental insurance business, but it’s far from the latter’s bread and butter. Instead, the company focuses on term and whole life insurance contracts, which account for 60% of annual premiums and offer deeper margins.
Torchmark’s most famous investor is Warren Buffett -- the Oracle of Omaha has owned a stake in the company since 1999. Other Buffett positions include Becton, Dickinson (BDX) and American Express (AXP).
One company that has had strong performance in 2010 is Parker-Hannifin Corporation (PH), a motion and control products manufacturer. Parker’s shareholders have seen an 18% improvement in their positions since the first trading day of 2010. But capital gains aren’t the only place where this company is rewarding its investors. Last week, management announced a 3.8% dividend increase, bringing the company’s quarterly payouts to 27 cents per share.
Simply put, Parker-Hannifin develops the engineering subsystems used in everything from industrial manufacturing machines to aircraft. While the company has been a perennial performer in the past, delivering impressively high margins through its enormous distribution network, the firm has slipped in recent years.
But Parker has pushed back toward expanded profitability in 2010 thanks to cost cutting initiatives and internal process improvements. Coupled with the firm’s strong balance sheet, and improving dividend, Parker should continue to be an excellent performer this year.
That’s what’s attracted funds like the Columbia Mid-Cap Value Fund (NAMAX) to acquire stakes in Parker’s business. Other companies owned by the fund include Discover Financial Services (DFS) and Lincoln National (LNC).
For the rest of this week’s dividend stocks, check out the Dividend Stocks portfolio on Stockpickr.
And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.
Disclosure: The Rhino Stock Report holds long positions in BDX and BRK.B
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.