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All Contents © 2019The Kiplinger Washington Editors
By Charles Lewis Sizemore, CFA, Contributing Writer
| March 26, 2019
Investors may cherish dividend stocks, which provide a regular stream of income that allows you to realize regular profits along the way without having to sell your stock. But they get twitchy around companies initiating a dividend – some argue that starting a new payout is an admission by management that the company’s best growth days are behind it.
Sonia Joao, President of Houston-based RIA 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. Analysis from Ned Davis Research showed that the Standard & Poor’s 500-stock index, equally weighted so each stock has the same influence, enjoyed a compound annual growth rate of 7.70% from 1972 to 2017. Breaking the index down yielded very different results. The dividend payers collectively enjoyed returns of 9.25% per year, while the non-payers lagged with returns of just 2.61%.
Even better, stocks that initiated or grew their dividends fared best of all, enjoying compound annual returns of 10.07% per year.
Here are 20 dividend stocks that have initiated a new payout within the past five years. Their yields range widely, from below 1% to above 8%. But all have made a commitment to start rewarding their patient shareholders with a regular cash payout.
Data is as of March 25. Dividend yields are calculated by annualizing the most recent monthly payout and dividing by the share price.
Market value: $33.6 billion
Dividend yield: 1.5%
First regular dividend: 2019
Let’s start with one of the darlings of the 1990s internet boom: online auction and payments pioneer eBay (EBAY, $36.72). Fully 24 years after its start as a public company, eBay is growing up and becoming a dividend payer.
Ebay declared its very first dividend earlier this year at 14 cents per share. The stock went ex-dividend on Feb. 28 and made the payment to investors on March 20.
At current prices, that dividend works out to a modest yield of 1.5%, which is slightly below the 1.9% sported by the S&P 500. But aggressive dividend growth is certainly feasible. At current levels, eBay is paying out only 22% of its profits in dividends.
In some ways, eBay has been something of an also-ran in the internet commerce world it helped to create. Most of the attention these days goes to Amazon.com (AMZN), Alibaba (BABA) and others. But eBay has been quietly growing its business, and revenues per share have risen by 54% since 2015 and the company’s spinoff of payments company PayPal (PYPL).
Ebay may not be as exciting as a social media darling like Facebook (FB), Twitter (TWTR) or Snap (SNAP). But the company has proven itself to be durable, and at long last, shareholder-friendly.
Market value: $4.3 billion
Distribution yield: 8.3%*
First regular distribution: 2015
Shell Midstream Partners LP (SHLX, $19.25) is a high-yielding master limited partnership (MLP) that’s distributing a whopping 8.3% of its share price. But this is exactly what you should expect from a company that was formed for the express purpose of throwing off tax-advantaged income to its investors.
Energy supermajor Royal Dutch Shell (RDS.A) created Shell Midstream Partners in 2014 by spinning off some of its midstream pipeline assets into a new standalone company. And Shell Midstream wasted no time in opening the income floodgates. The company made its first quarterly distribution of 10.4 cents per share in January 2015 and has been on a distribution-raising tear ever since. SHLX doubled its dividend within a year, and today’s quarterly payout level of 40 cents represents cumulative growth of 285% in just four years.
Shell Midstream is not without its risks. It’s dependent on Royal Dutch Shell to continue pushing down new pipeline assets, and the entire pipeline industry is under constant attack from conservationists and political activists.
But as the tobacco industry has proven over the decades, a difficult political environment doesn’t necessarily spell doom for a company, and particularly a high-yielding one. And there aren’t too many places you can find yields in excess of 8% without taking substantially more risk.
*Master limited partnerships pay distributions, which are similar to dividends, but are treated as tax-deferred returns of capital and require different paperwork come tax time.
Market value: $51.8 billion
Dividend yield: 4.1%
First regular dividend: 2014
It may seem funny to include a century-old company that used to pay dividends in a list of new dividend payers. But remember, General Motors (GM, $36.75) was a casualty of the 2008 meltdown. The original GM was forced to undergo a bankruptcy reorganization in 2009 that wiped out General Motors’ original shareholders, but the company issued new shares in a 2010 IPO.
Those shares haven’t performed particularly well; nearly a decade later, the price has barely budged from its original IPO levels. But there’s one thing the company has done well, and that’s pay its dividend.
The new GM paid its first quarterly dividend of 30 cents per share five years ago, in May 2014, and quickly raised it by 20% in the following year. GM then raised the dividend another 5.5% in 2016, to 38 cents, where it has sat ever since.
Automakers globally are cautious at this late stage of the economic cycle, hoarding cash that they fear they might need when the economy turns down. The car business is notoriously cyclical, and no one wants to see a repeat of the industry bailouts from a decade ago.
General Motors also is fighting off not just traditional competition, but upstarts such as Tesla (TSLA), which is a pioneer in electric and driverless vehicles. It’s probably not realistic to expect robust divided growth from GM over the next year or two. But at 4.1%, the stock’s yield is already one of the highest in the S&P 500.
Market value: $2.0 billion
Dividend yield: 2.1%
Apart from tobacco and gun stocks, few industries are more politically incorrect than fast food. Burger joints get blamed for America’s obesity epidemic and are also front and center in the fight for higher minimum wages. And worse … they’re simply not cool!
Yet fast-food joints remain a quick and affordable option for millions of Americans, and as McDonald’s (MCD) has proven over the decades, a nimble operator can still do very well in this space. Furthermore, the beauty of the fast-food model is that it very well suited to franchising. McDonald’s and its competitors are not in the burger-flipping business. That’s the job of their franchisees. No, the parent companies are essentially landlords who collect regular payouts while their franchisees accept most of the business risk.
This brings us to Jack in the Box (JACK, $77.49), a San-Diego-based fast-food chain with a major presence on the West Coast, as well as locations in the Midwest and South. Jack in the Box was founded in 1951 and has been a standalone public company since 1992. But it wasn’t until a few years ago that the company finally opted to declare a dividend. JACK paid its first dividend of 20 cents per share in May 2014, and while it hasn’t increased every year since then, the total payout has doubled to its current 40 cents per share.
JACK yields just more than 2%, giving it a higher yield than the S&P 500. And with a payout ratio of 37%, there’s still plenty of room for growth.
Market value: $3.4 billion
Dividend yield: 2.4%
First regular dividend: 2016
Valvoline (VVV, $17.85) is one of the oldest companies in America, with a history going back to 1866. While the brand today is associated with auto oil changes, the company actually predates the invention of the automobile. In fact, its lubricants were instrumental in the Industrial Revolution really getting off the ground.
Despite the company’s long history, the company is practically a baby as a public company. It was spun off from its parent Ashland (ASH) in 2016.
Valvoline declared and paid its first dividend of 4.9 cents in December of that year, and the company already has juiced its dividend by 116% to a current 10.6 cents per share. Importantly, there’s ample room for growth; the company’s dividend payout ratio is a very modest 28%.
Longer-term, with the rise of electric vehicles, Valvoline may find waning demand for its lubricants and services. Electric vehicles have fewer moving parts and don’t generally require regular oil changes. But realistically, even if a large percentage of new-car sales were electric vehicles starting today, the existing base of traditional gasoline-powered engines would be enough to keep Valvoline in business for a long time to come.
Don’t expect rapid growth from Valvoline, but it should be a consistent dividend producer for the foreseeable future.
Market value: $16.4 billion
Dividend yield: 1.1%
First regular dividend: 2017
Another recent spinoff that recently initiated a dividend is Yum China Holdings (YUMC, $43.31). Yum China owns, operates and franchises KFC, Pizza Hut, Taco Bell and other restaurants in China.
China has been the bright spot for the fast-food industry over the past several years, and Yum China has been the biggest beneficiary. As of the end of 2018, the company operated more than 8,400 restaurants in 1,200 cities and towns across the country.
Yum China paid its first 10-cents-per-share dividend in December 2017 and raised the dividend by 20% to 12 cents late last year.
YUMC isn’t a high-yielding stock, and a 1.1% dividend isn’t exactly going to give you money to burn. But if Yum China keeps up its 20% growth rate, the payout is going to look a lot different in a few years. And with a payout ratio of just 23%, there’s certainly room for that kind of growth.
Any investment in China today is complicated by geopolitical tensions and by the ongoing trade war. But considering Yum China is a play on the domestic Chinese consumer, the biggest factor in the company’s success will simply be the continued growth of China’s middle class.
Market value: $31.9 billion
Dividend yield: 1.8%
First regular dividend: 2015
Up next is Constellation Brands (STZ, $168.04), the largest publicly traded wine producer. In addition to its wine brands, Constellation also markets beer under the Corona, Modelo and Pacifico Mexican brands as well as an assortment of craft and specialty beer brands, such as Funky Buddha, Obregon Brewery and Ballast Point. Finally, the company also produces and sells an assortment of vodka, whiskey and tequila and other spirit brands.
Constellation has been a publicly traded company since 1992, but the company only began paying a dividend in 2015. Still, it’s making up for lost time. Constellation initiated a 31-cent quarterly dividend in May 2015, then bumped it to 40 cents in 2016 and 52 cents in 2017. Last year, Constellation hiked the dividend again, to 74 cents – more than double its original payout – where it remains today.
Despite all that dividend growth, Constellation’s dividend yield remains modest at just 1.8%. But with a payout ratio of just 17%, there’s plenty of room to keep bulking up that dividend. Bottom’s up!
Market value: $27.2 billion
Dividend yield: 0.8%
It’s hard to believe that satellite radio is nearly two decades old. But XM Holdings, one of the predecessors of Sirius XM Holdings (SIRI, $5.75) had its initial public offering in 1999, at the height of the dot-com bubble, and the first satellite broadcasts went out in September 2001.
Since then, the service has grown like a weed. Approximately 75% to 80% of new American cars come with satellite radio preinstalled, and Sirius XM estimates that 40% of this total eventually become subscribers. Sirius XM is available in vehicles from every major car company as well as in assorted trucks, boats and aircraft. The company also estimates that there are more than 100 million cars on the road with Sirius XM radios installed.
But it’s not just new cars. As ownership turns over, an increasing number of used cars now have Sirius XM preinstalled.
As the service has grown up and gone mainstream, perhaps it’s not surprising that Sirius XM recently initiated a dividend. In November 2016, the company declared and paid its first 1-cent regular dividend, which it has since raised to 1.2 cents.
By no stretch of the imagination is Sirius XM a high yielder – it delivers less than 1% of its price in cash dividends annually. But, if you believe in the satellite radio story, you can bet that dividend will rise aggressively over time.
Market value: $30.8 billion
Dividend yield: 1.0%
At this late stage of the economic cycle, it’s not such a bad idea to look for recession-resistant companies that can survive and thrive during hard times. While there is no indication that a recession is imminent, the recent inversion of the yield curve suggests that we might see one within the next 12 to 18 months.
A recession is bad for a high-end or even mid-tier retailer. But a recession can actually be great news for deep discounters, as consumers often trade down to cheaper alternatives when wallets get tight.
One discount retailer worth considering is Dollar General (DG, $118.75). Dollar General isn’t a true grocery store, as it doesn’t sell fresh meat or produce. But many working-class families depend of the stores for affordable packaged and processed foods, cleaning supplies, personal-care products, and even perishables such as milk, eggs and bread.
Dollar General was founded in 1939 but only recently began paying a dividend. The company delivered its first 22-cents-per-share regular dividend in April 2015 and has since raised it every year, including to 32 cents as of the payout to shareholders on April 23 of this year. (The company would yield 1.1% with the new dividend at today’s prices.)
There is a lot of competition in the low-end retail space from rival dollar stores and from mainstays such as Walmart (WMT). But if you believe that the economy may be due for a rough patch, then a stock like Dollar General may be worth considering.
Market value: $7.3 billion
Dividend yield: 1.6%
Old media, new dividend. News Corp. (NWSA, $12.56) is the sprawling empire founded by billionaire media mogul Rupert Murdoch. The current iteration of News Corp. is the result of a spin-off in 2013 that saw the group’s film and TV assets spun into Twenty-First Century Fox (FOXA), which recently sold many of its assets to Disney (DIS). The remaining print media assets staying in News Corp.
Some of the company’s better-known publications include The Wall Street Journal, MarketWatch, Barron’s and New York Post, among others.
The new News Corp. initiated a semi-annual dividend in 2015, paying 10 cents per share in September of that year. The quarterly dividend has been pegged at that level ever since.
Print media is a difficult business to be in these days, as even mainstays like the New York Times or News Corp.’s Wall Street Journal have struggled to find a sustainable profit model in the era of free and abundant internet content. So, you probably shouldn’t expect robust dividend growth in the immediate future.
Market value: $7.6 billion
First regular dividend: 2018
Like so many other old industries these days, hotels are being disrupted by upstart technologies like potential IPO candidate Airbnb that require essentially no labor and thus allow for cheaper pricing. Yet well-run hospitality companies are adapting and learning how to navigate this brave new world.
As an example, consider Hyatt Hotels (H, $72.11). Hyatt owns and franchises a portfolio of more than 850 properties in 60 countries. The company was founded in 1957 but has been downright stingy with its shareholders … at least until recently.
Hyatt paid its first dividend almost exactly a year ago, paying 15 cents per share. But in the first quarter of this year, the company bumped the dividend 27% to 19 cents per share.
That’s a fantastic start, and with a skinflint payout ratio of merely 9%, it’s reasonable to expect more aggressive hikes to come.
Courtesy Trein Foto via Flickr
Market value: $6.1 billion
Dividend yield: 2.7%
Most readers have probably never heard of Chemours (CC, $36.56). It’s one of those gritty industrial companies that few people give a thought to but is actually fairly significant to their day to day lives.
Spun off from DuPont in 2015, Chemours is a specialty chemicals company with three main segments. Its Fluoroproducts include refrigerants, propellants, and fire suppression products, as well as coatings; Teflon, a mainstay in most American kitchens, is one of their brands. Its Chemical Solutions segment provides chemicals for gold production, oil and gas, and the automotive industry. And its Titanium Technologies specializes in coatings, plastic packaging and laminate papers.
Chemours paid a one-time special dividend of 55 cents per share in July 2015 but quickly followed this up with its first regular quarterly dividend of 3 cents per share in November 2015. Since then, the payout has ballooned a whopping 733% to 25 cents per share.
It’s unlikely that Chemours hikes its dividend by another 733% over the next four years. But given that the payout ratio is just 15%, significant growth is certainly likely.
Dividend yield: 0.3%
Tech hardware companies have not traditionally been major dividend payers, as the cyclical nature of their business encourages them to hoard cash. There are exceptions, of course, such as chipmaker Intel (INTC). But as a general rule, dividend investors have found slim pickings in this space.
One interesting recent inductee into the dividend club is Universal Display (OLED, $155.34).
Universal Display Corporation specializes in organic light-emitting diode (OLED) technologies used in flat-panel displays and solid-state lighting applications and holds approximately 5,000 issued and pending patents worldwide.
The company was founded in 1985 and has been publicly traded since 1996. But it wasn’t until 2017 that it paid its first dividend. Universal Display made its first 3-cents-per-share payout in March 2017 and quickly doubled it in 2018. It hiked the dividend again earlier this year and now pays out 10 cents per quarter.
At current prices, Universal Display yields an extremely modest 0.3%; frankly, this stock may never be a truly high yielder. But if OLED continues to raise its dividend at the rate it has over the past two years, that percentage will at least be respectable in the near-future. With a payout ratio of just 19%, more dividend growth is definitely likely.
Dividend yield: 1.2%
SLM Corp. (SLM, $9.89) is either one of the great heroes of the past few decades … or one of the truly vicious villains.
If you’re not familiar with the company, you might know it by its nickname, Sallie Mae. SLM is in the business of making student loans. Contrary to popular belief, Sallie Mae is a private company and isn’t backed or guaranteed by the government, though it used to be. Today, Sallie Mae is purely an issuer of private student loans.
To its proponents, Sallie Mae has made higher education possible for millions of Americans who might not have been able to otherwise find the funds to attend. To its detractors, the company has relegated an entire generation of young people to debt slavery.
Sallie Mae originally initiated its dividend in 1985 but suspended it in 2007. The company then reinstated a dividend in 2011 only to suspend it again in 2014. SLM revived the payout yet again in March of this year, and the 3-cent quarterly offering equates to a 1.2% dividend right now.
Given the history of dividend cuts – and given the political momentum toward student loan forgiveness – you might think twice about depending on Sallie Mae’s dividend for your critical expenses. But, hope springs eternal that they get it right this time.
Market value: $2.9 billion
Owens-Illinois (OI, $19.02) isn’t the most glamorous of companies. In fact, it’s about as boring as they come. But it’s one of those companies whose products you’re likely to come across regularly.
Owens-Illinois makes glass beer bottles.
That’s not all it makes, of course. O-I makes glass wine, liquor, juice and soft-drink bottles, as well as various other glass packaging products. But that’s really it in a nutshell. Owens-Illinois is a bottle company.
Owens-Illinois has been publicly traded since 1991, but it only initiated its dividend this year. In January, the company kicked off its dividend history with a 5-cents-per-share payout.
You probably shouldn’t expect life-changing stock returns out of a company like Owens-Illinois. As we’ve established, it’s not exactly an exciting company. But it might be worth watching as a dividend stock if management follows up with major hikes in the coming years.
Courtesy Signature Bank
Market value: $6.8 billion
Signature Bank (SBNY, $124.03) is a regional commercial bank with 30 private client offices throughout the New York metropolitan area. Last year, the bank also expanded to the West Coast, opening a flagship office in San Francisco.
In a financial services world in which bigger is generally perceived as better, Signature Bank has carved out for itself a profitable niche, targeting a smaller but wealthier clientele of business owners and senior managers.
Signature Bank has been in business since 2001 and publicly traded since 2004.
The bank initiated its dividend in July 2018 with a 56-cents-per-share payout, which works out to a dividend yield of 1.8%. It only pays out 12% of its profits as dividends, too, making future dividend growth easily achievable and highly probable.
Market value: $1.3 billion
Dividend yield: 3.1%
A lot of work goes on behind the scenes to buy or sell a house, and if you’ve had to go through that process recently, it’s likely you or your counterparty used Realogy Holdings (RLGY, $11.79) at some stage of the process.
Realogy provides an assortment of real estate and relocation services through its four segments: Real Estate Franchise Services (RFG), Company Owned Real Estate Brokerage Services (NRT), Relocation Services (Cartus), and Title and Settlement Services (TRG). The company operates under the Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA, Sotheby’s International Realty, and Better Homes and Gardens Real Estate brand names.
Realogy has been a publicly traded company since 2012 and initiated a dividend in 2016 at 9 cents per share, where it remains today.
Realogy yields a very respectable 3.1%. Its profits are somewhat cyclical, based on the ebb and flow of the residential real estate market. But a 33% payout ratio gives the company enough room to produce meaningful dividend growth in the years ahead, particularly when the housing market picks up.
Dividend yield: 8.1%
Real estate investment trusts (REITs) should be familiar to income investors as they tend to be some of the highest-yielding stocks available in the public markets. Congress created the REIT structure with certain perks to encourage investment in real estate. The biggest is the tax break; REITs pay no federal income tax so long as they distribute at least 90% of their net income to shareholders as dividend.
One new addition to the REIT ranks is Ladder Capital (LADR, $16.83), a hybrid REIT that invests in both brick-and-mortar properties and paper assets, such as mortgages and related securities. Ladder also makes loans backed by real estate.
Ladder’s property portfolio is a diversified mix of commercial and residential properties, including student housing, industrial buildings, office buildings, shopping centers and others.
Ladder went public in 2014 and became a REIT in early 2015. It paid its first 25-cent dividend in April of that year and has since grown the payout to 34 cents per share. At current prices, the REIT yields an impressive 8.1%.
Market value: $7.4 billion
Dividend yield: 4.0%
REITs focusing on the retail sector have had a rocky ride over the past several years. As Amazon.com and other online retailers continue to pull more shopping out of the malls and into the internet, many investors have been left wondering whether retail real estate will soon be obsolete.
STORE Capital (STOR, $33.45) has a sensible strategy to combat the Amazon threat: focus on services.
Unless Mr. Bezos plans to send barbers, dentists or baristas to your home or office, service businesses such as hair salons, dental offices or coffee shops should be “Amazon proof.” And STORE has concentrated its portfolio there; roughly two-thirds of STORE’s tenants are in service industries as opposed to goods-producing industries.
STORE began trading late in 2014 and paid its first 11.39-cent dividend in January 2015 – though that was a “monthly” catch-up payment of sorts. STORE’s first quarterly payout in April 2015 was 25 cents, and the dividend hikes have only continued, putting the current payout at 33 cents.
Market value: $37.4 billion
Dividend yield: 2.2%
We’ll round out this list with one final REIT: data center operator Equinix (EQIX, $446.18).
Data has been called “the new oil,” and with good reason. Just as energy from fossil fuels was critical to getting the Industrial Revolution off the ground, data is what fuels the Information Economy. And we’re not just talking about social media or cloud operators. Large companies, banks and even governments are using more and more data by the day. Data center operators such as Equinix are a way to play this trend.
Equinix has more than 200 data centers in 52 cities spread across 24 countries on five continents. Suffice it to say that Equinix is an important part of the infrastructure connecting the world.
Equinix made a large special dividend of $7.57 per share in late 2014 and paid out its first regular quarterly dividend of $1.69 in March 2015. The company has since grown the dividend 46% to $2.46.
EQIX is not the highest yielding of REITs, with a yield of just 2.2%. But if you believe data is the critical commodity of the future, Equinix should benefit – and continue growing its payout as a result.