by Jeff Reeves | July 11, 2013 10:47 am
Dividend investing was all the rage during the tumultuous days of 2010 and 2011, where it was hard to depend on your shares doing anything other than gyrating up and down and ultimately leaving you right where you started.
But with a big rally to start 2013, many investors are “risk-on” again — abandoning high-yield stocks for turnaround stories like retailer Best Buy (BBY), which has more than doubled since Jan. 1, or sexy growth stories like electric car manufacturer Tesla Motors (TSLA), which is up 260% in about six months.
Don’t let the fireworks fool you, though. High-momentum stocks often see a painful end to their run. If you’re a long-term investor — particularly one concerned with income and capital preservation as much as profits — then dividend stocks remain a powerful way to invest.
If you’re not interested in chasing high-fliers in what could wind up being a bumpy second half of the year, then consider these five dividend payers with stable share price and impressive yields north of 5%:
Universal Health Realty Trust (UHT) is a great investment for two simple reasons.
The first: Unlike real estate investment trusts, or REITs, that dabble in cyclical businesses, UHT properties include hospitals, rehab facilities, childcare centers and medical office buildings. With the demographic push of the aging baby boomers and the nature of healthcare as a recession-proof business (you get sick whether you like it or not), this provides great stability to the underlying revenue stream.
The second: Its dividends are bulletproof and substantive. It’s a REIT, and as such must deliver 90% of its taxable income back to shareholders. That’s a big mandate for big dividends, and results in a 5.7% yield at current pricing. Bigger-picture, UHT is a Dependable Dividend Stock that has made payouts uninterrupted since 1987 — and its dividend has increased from 49 cents quarterly in 2003 to 62.5 cents in June for a 28% boost during the past decade.
If you’re looking at stability and income, Universal Health Realty is a big winner. Shares admittedly have done poorly in 2013 with a roughly 14% slide year-to-date, but long-term, this is an investment that will pay off.
A midcap insurance stock valued at about $3.6 billion, Old Republic International (ORI) underwrites auto, boat and homeowner insurance policies. It boasts a nice 5.4% dividend and has made regular payments to shareholders since 1942.
Insurers are set up to prosper in an environment where interest rates are likely to rise — and in fact, are already modestly rising, as judged by the yield on the 10-year T-Note. That’s because the premiums that customers pay Old Republic often get invested in low-risk, interest-bearing assets. And as anyone who has looked at the rates on CDs lately knows, interest-bearing assets haven’t had any returns to speak of since the Great Recession.
With a history of consistent dividends and high yields, ORI is attractive to new investors for many reasons. Shares are up about 26% year-to-date, but the company still trades for slightly under its book value and a forward P/E of less than 13.
Adjusted for splits, the per-share dividend has doubled from about 9 cents in 2003 to 18 cents a quarter currently — which means your yield should only get better over time if you’re in Old Republic International for the long haul.
As a $190 billion megacap, AT&T (T) isn’t going anywhere. It shares a near-duopoly on the wireless market with Verizon (VZ), and as long as people need Internet access and cell phones, this telecom will do just fine.
Recently, AT&T announced plans to expand its 4G LTE service to cover 200 million customers — with plans to cover 300 million by the end of 2014.
The downside, of course, is that the law of large numbers means AT&T can’t realistically grow its business at a rapid pace — so shares will never go crazy with a 50% annual gain. But if you’re looking for stability and dividends, then look no further than this entrenched company with a wide moat in a capital-intensive sector.
So far in 2013, the stock has been sluggish thanks in part to Highfields Capital Management’s founder and CEO, Jonathon Jacobson, publicly coming out as being short AT&T at the Ira Sohn conference in May. But the details were pretty thin, and the stock has held firm during the past several weeks barring a brief dip and recovery with the broader market in late June.
With AT&T boasting a 5.1% dividend yield and with low expectations priced in, now could be a decent time to stake out a position in this telecom giant. The forward P/E of AT&T is about 13, so shares seem fairly valued.
Franklin Street Properties (FSP), like Universal Health Trust, is a real estate investment trust. It is much more cyclical, however, since it owns and leases office properties mostly in the metropolitan Washington, D.C., area.
Amid the crackdown on federal spending and government layoffs, office space for consultants, contractors, lobbyists and other businesses has been in flux. FSP stock has slightly underperformed the market so far in 2013 with a roughly 10% return as a result — and longer-term, remains about 40% under its 2006 peak valuation.
But the company has seen three consecutive quarters of year-over-year revenue increases — and longer-term, has seen revenue rise in eight of the past nine quarterly reports. There is a chance that shares could remain sluggish, but a lot of negativity is priced in, and the nice dividend gives you incentive to stick around.
Yes, that Garmin (GRMN) — the GPS company that most folks think of as a dinosaur thanks to smartphone navigation programs.
But keep in mind that this firm does much more than those suction cup-mounted gadgets for your car. It is involved in both airplane and marine navigation systems, as well as dash-mounted systems built into autos like the Mercedes-Benz. The company also dabbles in pet location technology for lost dogs, as well as fitness apps for runners and bikers to monitor their performance and their exercise routes.
This diverse product catalog has allowed Garmin to stay stable lately. Though sales have flatlined, GMN had cash and marketable securities worth about $1.28 billion at the end of the last quarter — more than 18% of the company’s entire market value. The dividend is sustainable at about 65% of earnings per share, too.
In February, Garmin approved a $300 million share repurchase, which shows the company is committed to returning capital to shareholders. And longer-term, the late 2012 purchase of Sweden’s Nexus Marine is a prime example of how the company is trying to find growth in new areas of the navigation business.
With a lot of cash and with a steady payout, you could do worse than Garmin. Yes, shares are off about 13% in 2013 … but if it proves naysayers wrong, this stock will make it all back and then some.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at email@example.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.
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