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Dividend Stocks: Increaser Alternatives for April - 33000 views
BALTIMORE (Stockpickr) -- Another earnings season officially kicks off Monday of next week, with Alcoa’s (AA) quarterly financials. As is normally the case, investors should expect a definite uptick in dividend activity as companies announce another quarter’s shareholder payouts alongside their financial performance numbers for the period.
That anticipation has left some relatively slim pickings on the dividend front this week -- but that doesn’t mean that income investors are without options.
While our normal focus -- dividend increases -- are sparse this week, we’ll supplement our dividend stock focus with a look at companies slated for already-announced dividend payout dates next week.
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First though, let’s clarify the focus on dividends.
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. That said, not all dividend stocks are created equal. While that statistic applies to all companies that pay dividends, the companies that increase those dividend payouts over time are even better.
Here’s a look at some of April’s most interesting income payers…
While this week’s dividend hikes were few and far between, one blue-chip dividend payer did stick out: International Paper (IP). This paper and containerboard giant announced a meaningful 40% dividend increase that brings its quarterly payout to 26.25 cents per share -- a 3.48% yield at current share price levels.
While paper and packaging manufacturing may not be the most exciting field, that hasn’t stopped International Paper from being a dynamic investment. This stock has been undergoing a number of corporate actions in recent years, including the 2008 acquisition of $6 billion in Weyerhaeuser assets, and divestiture of more than $10 billion worth of timberlands.
In doing so, IP has shifted its focus from being a deeply integrated paper firm to excelling at only paper production -- and although the decision to sell off its timber assets (a major input cost) leaves IP exposed to commodity fluctuations, management’s decision is certainly defensible.
One of the company’s biggest challenges right now remains in the broad economy. Because consumption of the company’s paper products is highly correlated with the state of the economy, jobs numbers and consumer spending have a truly palpable effect on International Paper’s growth. While margins aren’t paper-thin (pun intended), they’re thin enough to warrant watching closely over the coming years.
In the meantime, this stock’s sheer size in the industry gives it plenty of cash flow generation capabilities to keep up with dividend payouts.
Internationa Paper, which is one of the top holdings of David Tepper's Appaloosa Management, is one of the top-yielding consumer non-durables stocks. It shows up on a recent list of 40 Stocks Analysts Are Insanely Bullish About.
Diageo (DEO) is one of the biggest players in the alcoholic beverage industry, with a portfolio of semi-premium and premium brands like Smirnoff, Johnnie Walker, Captain Morgan, and Guinness. Shareholders are drinking in the profits: on Monday, the company pays out a 99.6-cent dividend to holders of its U.S.-listed American Depositary Receipt.
Spirits make up the vast majority of Diageo’s business. While the company has been putting increasing focus on its small portfolio of beer names, Guinness remains the lynchpin of its brewing operations.
A similar profile exists for Diageo’s wine interests. While beer and wine may not be as attractive from a profitability standpoint as spirits, they should be an important volume component nonetheless. Expect increased marketing focus on beer and wine to fuel significant growth for Diageo.
While Diageo’s balance sheet carries a relatively high debt load, that’s a necessary evil given the constant brand acquisitions that the company undertakes. Despite that, attractive exposure to the beverage business and a solid debt rating make this a stock worth watching for income investors.
Diageo shows up on a recent list of 6 Alcohol Stocks That Analysts Toast.
2011 has been a relatively unappealing year for storied jewelry company Tiffany (TIF) -- shares of the company are essentially flat on the year. Even so, there’s plenty of reason to give this stock a closer look.
Most impressive is Tiffany’s enviable brand positioning. As a luxury jewelry maker with an aspirational brand name, Tiffany benefits from the status symbol effect, a factor that the company can easily leverage to provide higher volume, lower-priced offerings that appeal to a wider range of middle-class consumers.
That’s the same strategy that worked incredibly well for Coach (COH) -- but it requires biting the psychological bullet of lowering its price. Even so, Tiffany’s ability to pull that trigger is a large off-balance-sheet asset in my view.
This stock has been a major beneficiary of the broad increase in consumer luxury spending since 2009. While this year has been tepid so-far, I expect spending to be an important theme in 2011. Tiffany’s 25-cent dividend payout goes out to shareholders on Monday.
Tiffany, which is a holding in the portfolio of Neson Peltz as of the most recently reported period, shows up on recent lists of the top-yielding specialty retail stocks and TheStreet Ratings' top-rated specialty retail stocks.
The grocery business is evolving right now, and stores willing to invest in consumer upgrades are going to be winners long term. Safeway (SWY) is one of those companies. Meanwhile, investors collect a 12 cent dividend on Thursday -- a payout that tacks a 2% annualized yield on the back of the stock’s capital gains for 2011.
Two big trends are emerging in the grocery business right now: the shift toward higher-end shopping environments, and the increased use of private-label foods on shelves. Safeway was one of the early adopters of capital-intensive refurbishments to its stores. At present, around 80% of locations cater to upscale consumers.
At the same time, private-label names are becoming higher-end alternatives for shoppers that are fuelling substantially larger margins at grocery chains. Safeway’s building an economic moat in its brands; that’s something that investors need to be aware of if they’re considering a stock in this highly competitive industry.
BioMed Realty Trust
Real estate investment trusts, or REITs, have been much-maligned for their exposure to the still-struggling real estate market, but investors who have avoided these investments have been missing out in a big way. The vast majority of commercial REITs engage in long-term triple-net leases with tenants that essentially leave them free of exposure to the real estate market itself; instead, these investments are far more sensitive to interest rate fluctuations.
That's because REITs are required to pay out the vast majority of their incomes to shareholders to retain their tax-free status. And because their lease arrangements give this asset class highly dependable income streams, income investors benefit even more. The best of this breed comes in the form of niche trusts like BioMed Realty Trust (BMR), a REIT that owns 78 healthcare facilities around major metropolitan areas.
With a dividend yield currently ringing in at 4.31% (thanks to a 20 cent payout next Friday), investors should rethink exposure to REITs.
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.
At the time of publication, Elmerraji 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.