By Jonas Elmerraji
Posted on Nov. 4, 2009
Up one day and down the next -- it seems as though investors can’t make up their minds. But when the stock market churns and volatility spikes, they can still find solace in dividends. That’s because investing in income stocks is one of the few ways to collect earnings from a portfolio when the market isn’t moving higher.
The companies that actually increase their dividends during a tough economy send an even stronger signal to investors. With cash hard to part with when business is slow, management’s decision to let shareholders have a bigger cut tells Wall Street that a company is in good enough financial shape to weather the storm.
Income investors aren’t the only people who should focus on companies that hike their dividends. Historically, companies that pay dividends materially outperform those that don’t, and when the market turns bearish, dividends could be the only semblance of return that investors see for a while.
That’s why every week Stockpickr reviews recent dividend declarations and compiles a portfolio of dividend-increasers. These stocks represent some of the most enticing investments on the market right now.
As real estate values have fallen through the floor, real estate investment trusts have been eschewed by risk-averse investors. But after increasing its dividend 25% to 45 cents per share, Digital Realty (DLR) is beginning to attract investor attention once again. The REIT focuses on the technology niche, buying properties such as data centers in such tech-centric places as Silicon Valley and Northern Virginia.
The company has also been finding new data centers to add to its portfolio of 75 properties in this real estate buyer’s market. That’s a potentially prescient move as industry reports suggest that up to 50% of tech firms will have outgrown their data-center needs by the end of the year.
One of the funds that’s kept faith in Digital Realty is the CGM Realty Fund (CGMRX), rated five stars by Morningstar, which has delivered investors nearly 15% annually for the last 15 years. The fund also owns stakes in Simon Property Group (SPG), with a dividend yield of 0.71%, and LaSalle Hotel Properties (LHO), with a yield of 0.24%.
Digital Realty was trading down 0.34% early in Tuesday’s trading and now offers investors a 4.05% dividend yield.
This year’s contraction in the job market has forced a lot of candidates to rethink their resumes -- a tough reality for job hunters that’s been a huge win for alternative higher-ed companies such as Strayer Education (STRA). Last week Strayer announced that it was increasing its dividend payout by 50% to 75 cents per share for shareholders of record on Nov. 24. That’s a telling move for Strayer, which has seen its revenues increase by 29% in the last year.
Because the majority of Strayer’s students have full-time jobs and are over 31 years old, the company is less susceptible to dropouts over financial issues. And with student loan exposure well below any of its competitors, the company is one of the best avenues into the for-profit education industry.
Strayer is a holding of Lone Pine Capital, a privately-owned $7 billion hedge fund sponsor founded in 1997 by Stephen Mandel. Lone Pine also holds stakes in Las Vegas Sands (LVS) and the SPDR Gold Trust ETF (GLD).
Shares of Strayer Education were trading up 0.34% early in Tuesday’s trading and now sport a 1.47% dividend yield.
For the rest of this week’s dividend stocks, including VF Corp. (VFC) and NuStar Energy (NS), 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.
