Diversified Dividend Darlings
Arthur is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A well diversified portfolio of dividend paying stocks accomplishes three main investor objectives. Firstly, through diversification, investors are able to mitigate their risks by reducing exposure to any one industry. Secondly, dividends provide a steady form of income that can either be used to supplement one’s wage or provide a cash flow stream to cover living expenses. Finally, dividend income can often provide an inflationary hedge, especially in today’s low yield environment.
Tobacco: Cigarette companies continue to provide consistent capital gains in addition to paying out high quality and growing dividends. Since tobacco companies generate stable and high cash flows, they typically have much higher payouts than companies in other industries. Furthermore, tobacco firms provide systematic risk protection against broad market movements. Altria Group (NYSE: MO) trades with a beta of 0.42 and yields 5.7%. Altria has regularly outperformed the S&P 500 every year since the start of the new millennium and raised its dividend 45 times in the last 43 years.
Telecommunication: Telecommunication companies are one of the safest dividend investments available. Generating ample cash flows from wireless services and mobile phone add-ons such as text messaging and voicemail, the telecoms also have heavily give back to their shareholders. A growing number of mobile users will ensure that sufficient revenues are generated to continue with the dividend paying tradition. With a dividend yield of 5.84%, AT&T (NYSE: T) has seen its sales increase at a pace of 23.21% over the last 5 years. The average of the companies in the S&P, on the other hand, only increased annual sales by 8% in the same time frame.
Entertainment: I was actually pleasantly surprised to find out that one of my favorite companies, Regal Entertainment (NYSE: RGC) yields 6.74%. Initially, I assumed that Regal was an accidental high yielder which lost a considerable amount of value while maintaining its payout policy. However, over the last two and a half years, Regal shares have remained relatively flat. Toward the end of 2010, Regal announced that it will increase its dividend payment by 17% to $0.21. The reason for my surprise was due to the fact that core movie theater operations are typically not very profitable, with the exception of the concessions (which are VERY profitable).
Pipeline: Enbridge (NYSE: EEP), Canada’s biggest pipeline which stretches nearly 25,000km to delivery 2.2 million daily barrels across Canada and the U.S. has been in the news quite often recently due to the controversial expansion of the Northern Gateway pipeline. Despite this bad publicity, Enbridge has a very efficient business model which had pushed shares up by 30% over the last 5 years. Recently Enbridge increased its dividend by 15% with the expectation of continued growth into the future. Currently, the yield stands at 6.53%.
Utility: A dividend portfolio cannot be complete without addition of at least one utility stock. The utilities industry is probably the best known dividend payer due to its predictable cash flow and earnings. Regulated utilities such as Exelon Corp (NYSE: EXC) are often viewed as an alternative investments to bonds due to the regularity of income distributions. These stocks are often viewed as defensive investments as they have low correlations with overall economy. Exelon carries a beta of 0.57 and yields 5.23%.
Conclusion The aforementioned companies are relatively safe investments and provide a stable income stream to investors.
The Motley Fool owns shares of Altria Group. apinkasovitch has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.