5 Stock Picks That Now Pay Dividends

Retirees take note: Dividend stocks have been proven to outperform their non-paying peers over time.

Investors may cherish dividend stocks and the steady stream of income they provide—but they get twitchy around companies initiating a dividend. Some argue that starting a payout is an admission that the company’s best growth days are behind it.

Sonia Joao, president of Houston-based advisory firm Robertson Wealth Management, disagrees. “Paying a dividend doesn’t suggest slower growth ahead,” she says. “If anything, it’s the exact opposite. Precisely because the company expects durable growth, they’re more willing to part with their cash.”

This isn’t just academic. Dividend stocks have been proven to outperform their non-paying peers over time. Dividend payers in Standard & Poor’s 500-stock index enjoyed returns of 9.3% annually from 1972 to 2017, according to Ned Davis Research, while the non-payers delivered returns of just 2.6%. Stocks that initiated or grew their dividends fared best of all, posting average annual returns of 10.1%.

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Here are five stocks that have initiated a dividend within the past five years. Their yields (as of April 4) range widely, but all have made a commitment to start rewarding their patient shareholders with a regular cash payout.

Constellation Brands (STZ (opens in new tab)); recent share price: $191; dividend yield: 1.5%. The largest publicly traded wine producer also markets beer under Corona, Modelo and other brands. After initiating a 31-cent quarterly dividend in 2015, the company bumped it to 40 cents in 2016 and 52 cents in 2017. Constellation’s current 74-cent distribution is more than double its original payout. The yield remains modest, at about 1.5%, but with a payout ratio of just 17%, there’s plenty of room to keep bulking up that dividend.

eBay (EBAY (opens in new tab)); $38; 1.5%. Fully 24 years after its start as a public company, the online auction and payments pioneer declared its first dividend earlier this year at 14 cents a share. That gives the stock a modest yield of about 1.5%, slightly below the S&P 500’s 2.0% yield. But aggressive dividend growth is feasible. At current levels, eBay is paying out only 22% of profits in dividends.

The company has been quietly growing its business. Revenues per share have risen 54% since 2015, when eBay spun off payments company PayPal.

General Motors (GM (opens in new tab)); $39; 3.9%. GM, which paid dividends in the past, was a casualty of the 2008 meltdown. The original GM was forced to undergo a bankruptcy reorganization in 2009 that wiped out shareholders, but it issued new shares in a 2010 initial public offering.

The new GM paid its first quarterly dividend of 30 cents per share five years ago. Its current dividend of 38 cents per share gives the stock a 3.9% yield—one of the highest in the S&P 500.

Realogy Holdings (RLGY (opens in new tab)); $12; 3.0%. Realogy provides an assortment of real estate and relocation services, operating under the Century 21, Coldwell Banker, Sotheby’s International Realty and other brand names. The company initiated a dividend in 2016, and with its current dividend of 9 cents per share, it yields a very respectable 3.0%.

Realogy’s profits are somewhat cyclical, based on the ebb and flow of the residential real estate market. But a 33% payout ratio gives the company room to produce meaningful dividend growth in the years ahead, particularly when the housing market picks up.

Valvoline (VVV (opens in new tab)); $19; 2.2%. This supplier of automotive services and lubricants has a history dating back to 1866, but it’s practically a baby as a public company. It was spun off from parent Ashland in 2016. Valvoline declared its first dividend that year and has already juiced the payout by 116% to a current 10.6 cents per share, giving the stock a 2.2% yield. The company’s modest dividend payout ratio of 28% leaves ample room for growth.

Longer term, the rise of electric vehicles may mean waning demand for Valvoline’s lubricants and services. But even if electric vehicle sales increase, the existing base of traditional gasoline engines would be enough to keep Valvoline in business for a long time to come.

Charles Lewis Sizemore, CFA
Contributing Writer, Kiplinger.com

Charles Lewis Sizemore, CFA is the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor based in Dallas, Texas, where he specializes in dividend-focused portfolios and in building alternative allocations with minimal correlation to the stock market.