3 Dividend Stocks That Are Flush With Cash

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Income investors are always on the hunt for dividend stocks that have a nice, sustainable yield. That’s not often easy to find, though.

best dividend stocks bank stocksMany dividend stocks may not have a large enough moat to defend their position, and what may appear to be a sustainable payout could suddenly come under fire if the company rests on its laurels.

That’s why I like dividend stocks that have tons of cash on hand. Even if they have some debt offsetting it, if that cash hoard is so big that the dividend stock can withstand an assault from the Avengers, then I’m not going to worry over the long-term.

The other benefit of having a dividend stock with a lot of cash and little or no debt? It provides you with an effective discount to the stock price. If a dividend stock trades at $50 per share but has $10 per share in cash, you are getting the business for $40 per share. That’s a hidden value that may make the stock less expensive than it may appear.

Let’s look at some great dividend stocks that are flush with cash.

Cash-Rich Dividend Stocks: Microsoft Corporation (MSFT)

microsoft stock-msftMicrosoft Corporation (NASDAQ:MSFT) is likely on its way to becoming a dividend stock aristocrat, or a dividend stock that has paid a dividend for 25 years or more. We’re not quite there yet, but Microsoft has moved into the position of Peter Lynch stalwart. It’s not growing majestically anymore, but it has a mighty fine business, and continues to make strides in various areas.

MSFT stock has almost $100 billion in cash on hand, offset by only $20 billion in debt, for a net cash position of $80 billion. Of course, as a stalwart, MSFT stock churns out extraordinary free cash flow. It put out about $27 billion in its last fiscal year, yet only paid out $8.9 billion of it as its dividend.

It has room to expand that dividend, and enough cash on hand to even make a special payout one day. Or it could just slowly use that money to goose the dividend as it goes.

Cash-Rich Dividend Stocks: Garmin Ltd. (GRMN)

Garmin Ltd. GRMNGarmin Ltd. (NASDAQ:GRMN) is no Microsoft, but it is one heck of a dividend stock. The Swiss maker of GPS products for every type of vehicle has a consistent and robust business that generates a lot of free cash flow each year. GRMN stock generated FCF of $450 million, $575 million, and $645 million in FY14, FY13, and FY12, respectively.

Last year, it paid out $360 million of that FCF as a dividend, which is soon to sit at $2.04 per share, or 4.4%. As a backstop, it has $1.45 billion of cash on hand and no debt.

Although I’m not crazy about the declining FCF numbers, I’m not terribly concerned, either. Garmin is a leader in its class, and has always managed its balance sheet very well. It is arguably a bit pricey, trading at 15x forward earnings, on an EPS-plus-dividend rate of 10%, but like most reliable dividend stocks, GRMN stock is going to fetch a premium.

Cash-Rich Dividend Stocks: Intel Corporation (INTC)

Intel stock INTCSwitching back to tech, there’s one company that goes hand-in-hand with Microsoft, and that’s Intel Corporation (NASDAQ:INTC). Despite the slow move away from personal computers, Intel remains committed to being the largest supplier of computer chips the world will ever know.

Like MSFT stock, INTC stock has pretty much seen its best days and has settled comfortably into the role of stalwart, as well. With a 3% yield, and 8.25% long-term EPS growth predictions, INTC should fetch around 11.5x earnings.

Of course, I give it a 10% premium for having more than $20 billion in cash and investments, ongoing robust free cash flow ($10 billion annually), and a world-class brand name. In that regards, even paying 15x for INTC stock is not unreasonable, which is right about where it is.

With only $12 billion in debt offsetting its cash, and a mere 39% payout ratio, INTC stock can also afford a slight bump in yield.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. He can be reached at TheLibertyPortfolio@gmail.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/05/dividend-stocks-cash-msft/.

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