Don’t Dump These Downtrodden Dividend Darlings

by Marc Bastow | July 23, 2013 2:55 pm

Say your favorite income stock gets hit hard after a lackluster earnings report. Should you stand pat or fold?

Well, study after study shows that most investors lose out when they try to time markets. They would be better off with a buy-and-hold strategy emphasizing financially healthy, dividend-paying stocks.

The reasoning is fairly simple. Solid, well-established companies still have earnings ups and downs — indeed, those very companies with solid, well-established dividend histories help weather the earnings storm. Sure, it hurts to see knee-jerk drops in the share price after an earnings miss, but take heart — if you’ve chosen well, you’ll still get that quarterly dividend check.

Furthermore, you can expect continued increases in those checks.

Such is the case with the following four dividend-paying stocks that saw misses turn into selloffs on the news. If you own any of these four and haven’t made a move yet, hold off for a while — panic-selling is not the path to retirement planning. Think strategically and you may save yourself even more pain down the road.


The Coca-Cola Company (NYSE: KO)It was tough quarter for InvestorPlace Dependable Dividend[1] Coca-Cola (KO[2]), as the iconic beverage maker reported a 3% revenue slip in the second quarter (ended June 30) compared to the previous year, with profit lower by 4% at 59 cents per share, under analyst estimates of 63 cents per share over the same period.  Coca-Cola execs partially blamed the weather[3]: Cool, wet domestic temperatures and flooding in Europe led to weaker sales in both markets.  KO stock was clipped nearly 2% after the July 15 release.

But none of that will effect KO’s stellar dividend profile: a 51-consecutive-year streak built on the “wide-moat” business model that has Warren Buffett’s Berkshire Hathaway (BRK.A[4], BRK.B[5]) invested to the tune of 400,000 shares. And why not? Despite the drop in income compared to last year’s quarter, KO managed to squeeze out more than $2 billion in cash flow for the quarter, nicely ahead of its $1.1 billion payout, while still sitting on over $9 billion in cash.

KO may get buffeted by lagging beverage sales, but its still a sound company on solid ground, with a one of the most recognizable and trusted brands on the planet. Hang in there and you’ll by glad you did[6] when they make it 52 years in a row.


Sherwin-Williams SHWIt’s been a whirlwind for another Dependable Dividend[1] and one of InvestorPlace’s 10 Best Stocks for 2013[7] stocks, paint and coatings maker Sherwin-Williams (SHW[8]). The stock is up nearly 31% over the past year, but after releasing earnings of $2.56 per share for the second quarter ending June 30 — well ahead of the prior year’s earnings of $2.17 but below analyst estimates of $2.58 — shares hit the wall and fell over 9%. Increased prices for raw materials and unfavorable currency positions took their toll … but did I mention revenues increased 5.5% over that same period?

What increased even more — 28% to be exact — was the dividend declared last week, SHW’s 34th consecutive annual increase. Despite the difficult quarter, SHW sits on more than $700 million in cash, and with its continued solid record of cash flow, making that dividend payment won’t be any concern for the long term. SHW is also a steady buyer of its shares[9], further helping to boost your return. SHW investors would be wise to stick with this dividend payer in spite of a low (1.19%) dividend yield, as they’ve got continued room to grow the dividend well beyond a “down” quarter. Don’t let one “miss” get you down.


McDonald's NYSE:MCDMonday’s stock-price shellacking (down 2%) of yet another Dependable Dividend[10] — in this case McDonald’s (MCD[11]) — comes on the heels of an earnings miss for the second quarter ended June 30, with EPS coming in at $1.38, below Zacks estimates of $1.41 yet still ahead by nearly 4% compared to one year ago. You can blame it on slow growth in  Germany and France, along with Asia/Pacific, Middle East and Africa slowdowns, but know that MCD is continuously working to get people into their restaurants.

You can also count on dividend increases: 35 consecutive years and counting. As of this writing MCD hasn’t posted up its financials (instead providing a press release here[12]) but should do so within a few days for analysis. My hunch is that MCD will show solid cash flow and a more than adequate cash stash on the balance sheet to not only keep you in dividends for the remainder of the year, but headed right toward year 36 of a dividend increase.


Microsoft NASDAQ:MSFTIn the span of just one week Microsoft (MSFT[13]) went from an announcement focused on a massive reorganization — which was met with some optimism — to announcing its Surface tablet strategy is pretty much a failure. The telltale sign? A nearly $1 billion inventory writeoff on Surface tablets. I’m not sure how many RT tablets we’re talking about, since MSFT lowered the prices[14] on the devices, but that’s just not good. The news, which was incorporated into a revenue and earnings miss[15] for the quarter helped send the shares off a cliff, dropping 11% in one day, shaving lots of money from lots of retirement portfolios. The good news in the report? For the year ended June 30, Microsoft saw both top- and bottom-line year-over-year increases.

Still, the share price drop was enough to weaken the knees … until you look at their financial statements again and realize that keeping its 10-year consecutive year dividend streak alive is truly a walk in the park. Despite the write-down, the company finished up the year with $14 billion more in cash and short-term equivalents than it had a year earlier. The total cash hoard is now $77 billion. Tack on nearly $20 billion in free cash flow, and that 2.89% dividend should get a big bump over the next quarter, the first of many future bumps. Rest easy on this one even as you lick your wounds — MSFT will pay you to hold on for many, many years to come.

Marc Bastow is an Assistant Editor at As of this writing he is long MSFT.

  1. Dependable Dividend:
  2. KO:
  3. partially blamed the weather:
  4. BRK.A:
  5. BRK.B:
  6. you’ll by glad you did:
  7. 10 Best Stocks for 2013:
  8. SHW:
  9. steady buyer of its shares:
  10. Dependable Dividend:
  11. MCD:
  12. here:
  13. MSFT:
  14. lowered the prices:
  15. revenue and earnings miss:

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