Watching hyper-growth / no-earnings stocks like Twitter (TWTR) get pole-axed on a daily basis has done much to enhance the appeal of steady, boring, old-school metrics. Where a year ago at this time investors were willing to suspend their disbelief regarding fundamentals, right about now some steady income improvements and a dividend yield seems like a pretty good thing.
In the attached video Dani Hughes of Divine Capital cautions against throwing money at any company making quarterly payouts. Companies that don’t have an established record of dividends could be hiding more risk than it appears. By way of example Hughes offers three of her favorite yield plays and one to avoid.
Telecom companies typically pay nice dividends and the former Ma Bell is exhibit A. Right now shares are kicking out 5.2% and, as Hughes says, “paying you to wait."
Based on the 30 years of dividend history AT&T (formerly SBC) shows off on its investor relations website, the company is likely going to keep paying coming hell or high water.
Apple is fairly new to dividends and aggressive buybacks, but once they got started they went very, very big. Though some shareholders would (including me) prefer more attention be paid to R&D, Apple’s commitment to kicking out cash is not in question. In the last two years the company has issued two of the three largest corporate debt offerings in history just so it could turn around and distribute the proceeds via buyback and dividends.
Old Republic Insurance (ORI)
Insurance has been no guarantee for investors but Hughes thinks ORI is solid. “They have paid an increasing dividend over the last 34 years. The stock pays over 4%.”
She doesn’t like…
“Whenever a company has a history of cutting its dividend that’s a sign that they could do it again,” says Hughes. “Seagate has shown investors that it’s willing to cut its dividend so that’s why I would stay away.”
She’s referring to the company’s decision to eliminate the dividend to “enhance liquidity” in 2009. It may have been the right move for the company, and it worked out over the long haul, but it changed the game for yield hunters. When you’re putting money into a company based on the premise that it will be a reliable yield play these things matter.
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