by Alyssa Oursler | October 25, 2013 2:07 pm
While many companies offer dividends to make up for earnings growth and stock appreciation, others reward investors from all angles.
Yeah, yeah — a stock that can provide big-time income and sweet share appreciation isn’t just an investor’s dream come true. It also sounds too good to be true.
And admittedly, the combo is difficult to find, especially considering that a dividend stock’s yields naturally dwindle as its share prices rise.
But a few dreamy stocks have have provided double rewards for loyal shareholders so far in 2013. Texas Instruments (TXN), Seagate Technology (STX), Paychex (PAYX), Lockheed Martin (LMT) and Blackstone Group (BX) are five dividend stocks that have been anything but sleepy so far this year.
Let’s take a closer look at these five stocks serving dividends with delicious yields … despite market-beating gains.
Dividend yield: 3%
Chip-maker Texas Instruments (TXN) has soared nearly 30% since the start of the year, leaving shares of TXN stock at 13-year high. And still, the tech stock’s quarterly 30-cent-per-share payout still yields a solid 3%.
Texas Instruments has been paying dividends since 1962, with its annual payout growing from less than 9 cents per share to more than a buck in the past decade alone. And TXN already increased its dividend twice this year — by 33% and then another 7%.
Still, that payout looks as sustainable as ever, as TXN’s total 2013 payout will cost it only half of its expected full-year earnings.
Toss in expectations for 9% long-term earnings growth — including an estimate for 18% income improvement for 2013, followed by a 16% improvement for 2014 — and there’s plenty of reason to expect more of the same from TXN.
Year-to-date gains: 61%
Dividend yield: 3.1%
Another big climber and big yielder comes via hard-drive maker Seagate Technology (STX). This tech stock is sizzling, with gains of more than 61% in the book since Jan. 1.
Sure, Seagate stopped paying its dividend during the 2008-09 downturn, and waited until 2011 to reinstate it. But the refreshed dividend tallied 18 cents a quarter — 50% better than its final 2008 payout. And since then, the payout has already ballooned to 38 cents per share.
Even with STX sitting at all-time highs, that’s good for a yield north of 3%.
Plus, the dividend looks solid. The current 38-cent payout will tally a $1.52 per share payout for the full-year, which is less than 30% of expected earnings. And for the most recent fiscal year, which ended in July, Seagate’s total dividend used up only about a quarter of its free cash flow.
Year-to-date gains: 38%
Dividend yield: 3.3%
Payroll provider Paychex (PAYX) has given investors a lot to like over the last year or so, with its sweet payout serving as the cherry on top.
PAYX beat expectations in the most recent quarter thanks to both rising U.S. employment and its expansion into international markets. The company snatched up German payroll firm Lohndata, for example, is expanding its services in South America and just announced a move toward cloud accounting via an equity investment in Canadian firm Kashoo.
Paychex has also been sweetening its quarterly payout in recent years, with a 6% hike coming in August. The resulting 35-cent quarterly payout is triple what Paychex was paying a decade ago translates to a forward yield of 3.3%.
It does make for a high payout ratio, but investors should find comfort in the fact that Paychex historically has higher free cash flow per share than it does earnings per shares, and the fact that earnings are on tap for double-digit annual growth over the next half-decade as it is.
Year-to-date gains: 44%
Dividend yield: 4%
Next up, defense contractor Lockheed Martin (LMT) pays a quarterly dividend of $1.15 per share, good for a yield of 4% even after the steep climb that began in March. That payout has also increased more than fivefold over the last decade, yet still makes up a reasonable 43% of 2014 earnings.
Lockheed Martin stock did suffer a setback during the government shutdown, as the defense contractor was forced to furlough workers and some investors quickly took their huge profits and headed out the door. Since then, though, LMT stock has already regained its losses and then some.
The result: a 44% year-to-date climb that nearly doubles the broader market’s gains and that leaves LMT stock at all-time highs.
Plus, LMT stock doesn’t look frothy despite its soaring year. Lockheed shares can be had for just 13 times expected 2014 earnings. Meanwhile, rivals Boeing (BA) and United Technologies (UTX) go for multiples of 17 and 15, respectively.
Year-to-date gains: 71%
Dividend yield: 4.4%
Private equity king Blackstone Group (BX) has continued its roaring comeback so far in 2013. BX came public in 2008 but the stock fell big-time as the financial crisis froze dealmaking. Since finding a bottom in 2009, though, Blackstone began chugging upward again, and took off this year to the tune of 71% year-to-date gains.
The giant private equity firm and financial services provider has nearly $230 billion assets under management as of the most recent quarter. It’s also a limited partnership, with the policy being that BX distributes all of its net after-tax earnings to shareholders, in excess of amounts determined by its limited partner.
Translation: Shareholders have been rewarded nicely. The company’s 2013 payouts, for example, tally a $1.18 annual dividend, good for a yield of nearly 4.4% even after the stock’s stellar run.
And considering BX is on pace to grow earnings at an eye-popping 16% per year long-term, there’s a good chance those delicious dividend will continue.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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