10 Updates

8 Stocks With A Little Something Extra

Feb 20 2014, 9:20am CST | by

Who doesn’t love a little something extra—a gift with purchase, a bonus of some kind? Well, in equity investing, those “little extras” can add up to a whole lot. Investment professionals often talk...

Filed under: news

 
 
 

22 weeks ago

8 Stocks With A Little Something Extra

Feb 20 2014, 9:20am CST | by

Who doesn’t love a little something extra—a gift with purchase, a bonus of some kind? Well, in equity investing, those “little extras” can add up to a whole lot.

Investment professionals often talk about “total returns” from stock investments. Simply put, a stock’s total annual return consists of annual appreciation—i.e. how much it went up (or down) that year—and the dividends paid annually.

Here’s the amazing part though. Historically, dividends—the little bonus paid to shareholders—have contributed to approximately half of the market’s total return.  Consider this: The historic return on the stock market since 1929 is about 9.5%—half of which can be attributed to dividends, according to Standard & Poor’s.

So choosing a solid company with dividend paying stocks is tapping into all the upside potential the stock market has to offer without having to try to “pick a winner” from unfamiliar companies that just happen to be in the news a lot.

Dividend-paying stocks won’t as a rule provide “explosive” growth, but they can grow and compound faster than inflation (or a CD in a bank).

Here are some I like and their dividend yields.

Stock (ticker) Yield
Illinois Tool Works (ITW) 2.1%
Eli Lilly (LLY) 3.8%
McDonald’s (MCD) 3.4%
Microsoft (MSFT) 3.0%
Owens & Minor (OMI) 2.8%
Southern Company (SO) 4.9%
Sysco (SYY) 3.3%
Walmart (WMT) 2.5%

What I like about these companies is the strong dividend yield (cash dividend ÷ stock price), a strong balance sheet and, perhaps most importantly, the growth in their dividends. Not only do dividends add to the total return, but dividends that grow over time offer a significant hedge against inflation.  To see this look at the chart below that shows the average annual growth in dividends annually from 2003 to 2013.

Average annual growth in dividends 2003-2013

Illinois Tool Works (ITW) 13.0%
Eil Lilly (LLY) 3.9%
McDonald’s (MCD) 22.8%
Microsoft (MSFT) 19.8%
Owens & Minor (OMI) 15.4%
Southern Company (SO) 3.8%
Sysco (SYY) 9.4%
Walmart (WMT) 18.0%

All of these companies have bested the inflation rate of 2.4% since 2003, some rather spectacularly. Stodgy old McDonald’s, for instance beat the rate of inflation by a factor of nearly 10x.  That’s some inflation hedge.  Even 102-year-old Illinois Tool Works beat the rate of inflation by almost 5x.

When looking for dividend paying companies, it’s important to pick companies that have the ability to keep paying them even when there is volatility in their revenues or earnings.  One way to get at this is to look at the dividend payout ratio (dividend per share ÷ earnings per share).  This ratio tells you what percent of the company’s profits are allocated to dividends. The chart below shows these dividend payout ratio for our favored companies.

Dividend Payout Ratios
/>

Illinois Tool Works (ITW) 42.6%
Eil Lilly (LLY) 45.4%
McDonald’s (MCD) 55.8%
Microsoft (MSFT) 35.5%
Owens & Minor (OMI) 54.9%
Southern Company (SO) 107.5%
Sysco (SYY) 67.7%
Walmart (WMT) 36.0%

Intuitively, it’s easy to understand that a company that pays 90% of its profits in an annual dividend totaling, say, $1.00, will have trouble paying its dividend in a year when revenues or profits decrease by 25%. By contrast, Microsoft, shown in the chart above, uses just 36% of it’s profits to pay its annual dividend of $1.02.  Should revenue or profits decline at MSFT in any given year, the company has plenty of “cushion” to continue paying it’s shareholders $1.02.

Note the Southern Company dividend payout ratio of 107%.  That means if profits are $1.00, the annual dividend is $1.07, a seemingly unsustainable payout. However, as a utility, Southern Company has lots of depreciation, which is counted as an expense, but does not really use cash. When looking at the cash flow of Southern—which is different from profits—I feel the company can continue to pay a dividend without interruption.

There are plenty of great companies out there that pay a good dividend and have a track record of increasing them over time.  The ones shown in this article were chosen for our “Dividend Buster” portfolios for their dividend track records, as well as strong balance sheets too, which will help keep investor’s cash flows strong, even when the economy gets choppy.

Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hisha ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the sout ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million in ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Indust ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of R ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar S ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

US announces new sanctions on Russia over Ukraine
Washington, July 30 (IANS) Washington has imposed new sanctions on Russia's energy, arms and financial sectors over the Ukraine crisis, US President Barack Obama said Tuesday.
 
 
EU to impose more restrictive measures against Russia
Brussels, July 30 (IANS) The European Union (EU) has agreed a package of "significant" additional restrictive measures targeting sectoral cooperation and exchanges with Russia, the European Council said in a statement Tuesday.
 
 
Green spaces impact birth weight positively
London, July 29 (IANS) Where expecting mothers live can also have a bearing on the birth weight of their babies as researchers have found that mothers who live near green spaces deliver babies with significantly higher birth weights.
 
 
What makes you a pessimist?
London, July 29 (IANS) Cannot see thing turning out to be all right? A hyperactive habenula, half the size of a pea in the brain that tracks predictions about negative events, could be the key, a study suggests.
 
 
 

Latest from the Network

Only 3,200 tigers left in the wild
Geneva, July 30 (IANS/EFE) Of the 100,000 tigers that once roamed in the wild a century ago, only 3,200 are left behind, the World Wide Fund (WWF) for Nature has revealed in a report. WWF has also offered to assist...
Read more on Politics Balla
 
US sees 'steady' progress in Iran n-talks
Washington, July 30 (IANS) The chief US negotiator in Iran nuclear talks Tuesday cited "significant and steady" progress over the past six months, but would not say whether the negotiations would be further extended...
Read more on Politics Balla
 
Bradley Cooper learning to flip burgers
London, July 30 (IANS) Actor Bradley Cooper, who will be seen as a chef in his next film, tried to learn how to flip burgers at a fast food chain in preparation for the role. The "Hangover" star decided to practice...
Read more on Celebrity Balla
 
US announces new sanctions on Russia over Ukraine
Washington, July 30 (IANS) Washington has imposed new sanctions on Russia's energy, arms and financial sectors over the Ukraine crisis, US President Barack Obama said Tuesday. Building on measures unveiled two weeks...
Read more on Politics Balla
 
Jamie Foxx to play Mike Tyson in biopic
Los Angeles, July 30 (IANS) Actor Jamie Foxx will reportedly be transformed into Mike Tyson for a new biopic. Foxx, 46, would be transformed by the CGI technology that changed Brad Pitt from an old man to a baby in "...
Read more on Celebrity Balla
 
'Israeli overnight strikes kill 13 in Gaza'
Gaza, July 30 (IANS) Israeli strikes carried out overnight Tuesday killed 13 more Palestinians following the artillery shelling on Jabalia town in northern Gaza Strip, medics said. The Palestinians, including a...
Read more on Politics Balla
 
Obama writes to Putin over missile treaty violation
Washington, July 30 (IANS) US President Barack Obama has written to his Russian counterpart Vladimir Putin over Moscow's breach of a 1987 missile treaty, the White House said Tuesday. The treaty bans ground-launched...
Read more on Politics Balla
 
Katy Perry parties with Diplo
Katy Perry partied with Diplo in Las Vegas on Monday night (07.28.14). The 'Dark Horse' hitmaker, who reportedly rekindled her romance with the DJ, real name Thomas Pentz, last month, was spotted enjoying a cosy dinner...
Read more on Celebrity Balla
 
Adrienne Bailon regrets appearing on 'KUWTK'
Adrienne Bailon claims dating Rob Kardashian hurt her career. The 30-year-old singer, who split from the reality TV star in 2009 after two years of dating and later underwent laser treatment to get a tattoo of his name...
Read more on Celebrity Balla
 
Chloe Grace Moretz doesn't want a boyfriend
Chloë Grace Moretz thinks she's too young to have a serious boyfriend. The 'Equalizer' star admits she usually takes her mother, Teri, or brother Trevor to red carpet events, as she doesn't want to ''waste away'' her...
Read more on Celebrity Balla