Nothing is more frustrating to me than stingy dividend stocks.
I have a well-deserved reputation as a cheapskate. (I prefer to think of myself as “frugal,” but my friends and family have other choice words for me.) Yet as miserly as I am, I know when I’m beaten. I once had a friend that was tired of paying for lawn service. So he bought a baby goat at a flea market, had the goat eat his grass, then returned to the same flea market and sold the now fattened goat for a profit.
But while I appreciate extreme frugality, it’s not something I tolerate in dividend stocks. Especially ones I own. I expect my investments to be lavishly generous … which means paying respectable dividends and raising them over time.
Alas, we have a lot of Ebenezer Scrooges out there in corporate America that either don’t pay dividends at all or don’t pay nearly enough of them. Realistically, not every company can be a dividend-paying powerhouse. Cyclical companies like General Motors Company (NYSE:GM) or Ford Motor Company (NYSE:F) have wildly erratic businesses and need to keep a little extra cash on hand for the lean years. (Of course, even then, weak share prices have made the pair of them look generous via nearly 5% yields.)
But companies with consistent revenue streams have no excuse for being stingy with their investors.
You can think of this as an exercise in naming and shaming. These seven miserly dividend stocks need to open their wallets a little wider and share the wealth with their long-suffering shareholders.
Dividend Stocks That Owe You More Money: Visa (V)
V Dividend Yield: 0.7%
At the top of the list is global payments leader Visa Inc (NYSE:V).
Visa sits at the intersection of two of the most powerful trends in the economy today: the rise of the cashless society and the rise of the emerging market consumer. With every passing day, more people around the world are swiping their credit and debit cards in more places. And as the owner of the largest global payments network, Visa sits at the middle of this, like a toll booth operator.
Yet Visa has thus far failed to share its success with its shareholders. The dividend yield on V shares is a pitiful 0.7%. It’s not for lack of resources. Visa’s dividend payout ratio is an extremely low 23%.
Why the stinginess? I don’t know. Capital expenditures are a pittance. Visa could double its dividend tomorrow and still have a reasonable cash cushion.
If you own this stock, Visa owes you more money.
Dividend Stocks That Owe You More Money: MasterCard (MA)
MA Dividend Yield: 0.8%
Visa’s not alone when it comes to being a dividend miser. Rival MasterCard Inc (NYSE:MA) is every bit as bad.
MasterCard’s dividend payout ratio is an extremely low 21%, and its dividend yield is a pitiful 0.8%. I suppose that might be competitive with a savings account these days. But it’s less than half the dividend yield of the S&P 500, and there’s just no excuse for that.
Furthermore, MasterCard is wildly profitable with an eye-popping return on equity of more than 60%.
MasterCard is not a bank that’s subject to credit risk. Like Visa, it’s essentially a toll road. Every time a shopper swipes a MasterCard-branded credit or debit card, the company collects a fee. It’s steady money, meaning MasterCard should be a natural dividend payer. There really is no justification for the cheapness here.
So MasterCard, it’s time for your naming and shaming too. Get with the program, and share the wealth with your shareholders!
Dividend Stocks That Owe You More Money: Quest Diagnostics (DGX)
DGX Dividend Yield: 1.9%
Quest Diagnostics Inc (NYSE:DGX) is a fantastic company that in a lot of ways is in the right place at the right time.
With the aging of America’s baby boomers, demand for medical care is higher than it’s ever been before, and it will only get higher. Plus, with a greater emphasis on preventative medicine, lab work is becoming more critical. Adding to this the additional demand boost from more Americans having access to health insurance via the Affordable Care Act, and life should be pretty good for Quest Diagnostics. Not surprisingly, the stock is up nearly 20% this year.
Well, if business is booming … then why is DGX’s dividend yield such a tightfisted 1.9%? Quest’s dividend payout ratio is a very low 27%, so there is definitely plenty of room to raise it. The company could double its dividend, in fact, and not be financially stretched.
So come on, Quest. Open your wallet. Your shareholders deserve it!
Dividend Stocks That Owe You More Money: Disney (DIS)
DIS Dividend Yield: 1.5%
When I think about the thousands of dollars I’ve spent on Walt Disney Co (NYSE:DIS) programming and merchandise over the years, I’m simultaneously amazed and depressed. Star Wars light saber toys. Marvel superhero action figures. Mickey-Mouse-themed everything.
And movies … How much money have I spent on movie tickets and rentals of cartoon movies? And sports! Don’t forget that ESPN is also part of the Disney empire.
With all of the cash that Disney Hoovers out of my wallet and the wallets of moms and dads all around the world, you would think they’d pass a little more of on to their shareholders. Disney stock sports a modest dividend yield of 1.5%. Given that the dividend payout ratio is only 25%, that yield is just too low. Disney could double its dividend and still be well within prudent levels.
Disney’s business is somewhat cyclical. I’ll give it that. Theme park attendance waxes and wanes with the health of the economy, and blockbuster movies are somewhat hard to predict. But given the rip-roaring success of the company in recent years, DIS ought to be sweetening the deal for its shareholders.
Unless they’re following the example of that iconic Disney character Scrooge McDuck…
Dividend Stocks That Owe You More Money: Mondelez (MDLZ)
MDLZ Dividend Yield: 1.8%
There is no more fundamental need than that of food. We can skip a mortgage payment if the shekels get tight or put a few extra miles on our car before buying a new one. But we need food to live.
So you’d think a food and snack company like Mondelez International (NASDAQ:MDLZ) would be a high-yield powerhouse.
Well, you’d be wrong. Mondelez yields only 1.7% and pays out only 15% of its profits as dividends.
This is a mature company with brands you’d recognize — Nabisco, Oreo, Cadbury, and Trident gum, among others. It’s certainly not a young startup conserving every free dollar to invest in future growth. So Mondelez should, at a minimum, yield as much as The Coca-Cola Co (NYSE:KO) or PepsiCo, Inc. (NYSE:PEP) — which yield 3.1% and 2.8%, respectively. Mondelez’s 1.8% yield looks downright parsimonious by comparison.
Come on, Mondelez. Time to step it up. If you want to keep your investors happy, plan on doubling your dividend. You can afford it!
Dividend Stocks That Owe You More Money: Alphabet (GOOG, GOOGL)
GOOG Dividend Yield: N/A
Despite being the second-largest company in the world by market cap, Alphabet doesn’t pay a dividend at all. Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), who are first and third on the list, respectively, have become very reliable dividend payers in recent years. In fact, I’d go so far as to call both dividend-raising machines.
So what’s Alphabet’s excuse?
Frankly, there isn’t one. GOOG gushes free cash flow every year, and it’s business isn’t particularly cyclical. I understand that Alphabet considers itself an innovative growth company and likes to throw money at quirky new ideas. But there’s plenty of room for a lavish research and development budget and a dividend.
Last year, I wrote an open letter to Alphabet, telling the company to “grow up, wear your big-boy pants, and start paying a dividend.”
I’d reiterate that call today. Alphabet should be nagged and shamed into paying a dividend. It’s disgraceful that the second largest company in the world — and one with nearly $80 billion in cash burning a hole in its pocket — refuses to share the wealth with its patient shareholders.
Dividend Stocks That Owe You More Money: Berkshire Hathaway (BRK.A, BRK.B)
BRK.B Dividend Yield: N/A
Notice I said “planning for” and not “paying.” I’m willing to the Oracle of Omaha something of a free pass. A dollar paid out in dividends is a dollar that Mr. Buffett can’t retain and invest. And frankly, Mr. Buffett is going to spend that dollar more wisely than you or I.
But the Oracle is also nearing the end of his legendary career. While Buffett appears to be healthy for his age, he’s also over the age of 80. And while I don’t see Buffett ever actually retiring — he’s more likely to die in the saddle with his boots on — he’s already started succession planning by hiring two world-class investment managers and choosing his son to act as company chairman.
Why not also have a dividend policy in place for the post-Buffett era?
Berkshire Hathaway’s portfolio is mostly composed of conservative dividend payers. Once Buffett is not longer steering the ship, I think the company he built should initiate a dividend in the neighborhood of 2% to 3% with a plan to raise it over time.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long AAPL, F and GM.