Many stocks are covered on a frequent basis just because “everyone” holds them. Walmart (WMT), McDonald’s (MCD), General Electric (GE) and the like — many people own them, and thus many people want more news on them.
But you and I aren’t the only people holding such widely known stocks. A large number of exchange-traded funds and mutual funds also have massive holdings in various stocks, be it because they’re part of an index, they meet particular financial standards or an active manager just plain likes them.
Which brings me to a list provided by ETF Channel: 25 Dividend Giants Widely Held by ETFs. Its a nifty list that provides exactly what’s advertised: 25 income stocks that are widely held in ETFs.
You’d have a hard time coming up with a lot of major beefs with many of these companies. There’s a reason so many funds hold them, and it’s not just herd mentality.
Still, one thing was notable about a few of these widely held income stocks — a few have been lacking on the dividend growth front. That’s not to say they’re awful holdings and will weigh heavily on a host of funds. But investors should realize that each has a couple holes, and that investors shouldn’t hold their breath on substantial dividend increases anytime soon.
Telecom giant Verizon (VZ) certainly delivers the goods in yield at 4.4%. But it hasn’t really done much in the past few years to juice its healthy payout further.
During the past five years, VZ has only upped his payout from 46 cents to 52 cents — good for a woeful average of 3% annually.
To put it bluntly, that’s pathetic. Verizon has generated an average of more than $31 billion in operating cash flow during the same period, and held anywhere between $3 billion and $13 billion in the bank depending on the year. Of course, the problem is net income — over the past few years, it has been trending down, from nearly $5 billion in 2009 to just $875 million (primarily due to pension charges) last year.
Verizon’s no terrible holding — and I actually own, though it’s just an old vestige from an investment in AT&T (T) way back in the 1980s — but dividend growth certainly isn’t at the same level as Wall Street’s adoration.
Big Pharma mainstay Pfizer (PFE) was once a dividend champion with a steady string of 30 consecutive annual increases. That streak ended in 2009-10, however, when it slashed its dividend in half — from 32 cents quarterly to 16 — amid the global financial crisis.
PFE’s dividend is back up to 24 cents, and at a yield of 3.4%, no one buying in today would exactly be crying “uncle,” but the pace of Pfizer’s dividend growth has slowed to single-digit percentages.
That’s partly because Pfizer’s business model requires constant new-product development and innovation to introduce new drugs that can replace the high-priced products once their patents expire. Get caught between cycles, and profitability and cash flows can — and do — suffer.
While Pfizer is working to regain shareholder trust, the troubles facing it and all of Big Pharma are enough to keep me away.
Bank of Montreal
Canadian banks have long been viewed as pretty steady, In fact, Canadian banks didn’t suffer nearly as much as those in the U.S. during the financial crises as pointed out by Dividend Growth Investor.
Despite their sound businesses, however, the Canadian government placed a two-year hold on banks’ dividend increases in late 2007. All of Canada’s major banks hiked their dividends shortly after the moratorium … except for Bank of Montreal (BMO).
BMO’s 70-cent quarterly payout held from October 2007 through In fact, its 70 cents per share per quarter dividend held from October 2007 until its first increase in October 2012 — a miserly boost of 2 cents per share, or 2.9%. BMO has followed that up by another bump this year … alas, at just 2.8%.
BMO is the highest yielder of these three at 4.5%, but it’s not telegraphing much on the dividend increase front, and some were disappointed that Bank of Montreal didn’t throw out a hike this week. Mix in awfully flat performance since 2010, and it’s hard to get too jazzed about this widely held dividend stock.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long VZ and MSFT.