Three Stable High Yielding Juggernauts
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I like dividends, that’s no big secret. Seriously, look at my other articles, I LOVE dividends. Over the past few days I have been looking through countless numbers of screens to find the sturdiest, most stable dividend paying companies around. I had one major requirement, the company had to pay a big dividend, and I’m talking over 5% here, the type of dividend that gets me going!
I’m pretty sure that the three companies I like the most here could in fact make up a pretty decent portfolio. Let’s play a little guessing game! I have three companies, all three have dividends that yield over 5%, and all three are towards the top of their respective fields worldwide. One deals in sin, another in oil and a third in weapons. What are these companies? Don’t cheat!
The three companies were Lockheed Martin Corporation (NYSE: LMT), Altria (NYSE: MO) and Royal Dutch Shell (NYSE: RDS-A). These three companies have a market cap in excess of $300 billion and an average yield (equally weighted) that sits at 5.16%. Not too shabby is it? The beta on an equally weighted portfolio would be 0.79, this isn’t a portfolio for the risk takers.
In the spirit of Fool.com, let’s jump into each stock and see if it really does deserve a place in our portfolio for the coming years.
Oil & Gas
You’ve heard of Shell, they’re the third largest oil company on the face of the planet. Looking at their website, you can see just how widespread they are. It’d probably be quicker, and easier, to name the nations that Shell is not currently operating in.
Shell, being an oil and gas company, is highly reliant on the prices of both of the commodities. Despite that, their free cash flow has been on a tear and it should continue on the same path over the next few years.
You’re here for the dividends though, right? Well, that’s good because Shell recently increased their dividend to an annual rate of $3.60 per share. That’s a 5.2% yield at current market levels and represents a 40% payout ratio. If you go way back, I’m talking 30 years here people, you’ll see that Shell have been consistently raising that dividend of theirs. They’ve kicked it up an average of 5.7% per year over that time frame, that’s pretty good if you ask me.
Oh, and as if you needed one more reason to invest in this oil giant, they actually have the largest reserves of their peers. More than ExxonMobil, more than BP, more than any of them! Having the most of something that’s finite is pretty good, especially when the world runs on that stuff.
OK, so Lockheed Martin do more than make fighter jets but that’s what they’re most famous for, at least to me. The company is actually the largest defense contractor on this little planet that we call Earth. When Will Smith is tasked with saving the world on Independence Day, there’s a good chance he’ll be using Lockheed’s technologies.
Let’s just jump right to the problem with this company, they’re reliant on the United States government. There’s been a lot of talk about budget cuts recently, and those types of things won’t play out too nicely for a company like Lockheed Martin.
If you’re not afraid of massive cuts to the defense budget then Lockheed Martin could be a great company for you to invest in. Their annual payments come to about $4.60 for a yield of 5.11%, which means a payout ratio right around the 50% mark.
If you want to buy an interesting company that works in a variety of areas, many too secretive for even the investor to know about then Lockheed Martin is your company. If they’re able to get more and more of their sales out of the United States to stabilize themselves then they become more and more valuable in my eyes. International sales made up around about 17% of total sales in 2012, so we’re pretty close to seeing the 20% mark.
It’s not a place for all people to invest but the companies in this space have some exceptional dividends and they’re still growing in sales, even despite the targeted campaigns to prevent people from smoking.
Altria is my favorite company in the space. They’re solely American focused, but they do carry some of the most recognizable brands around. The company is also now engaged in the production and sale of wines from their vineyards, just in case smoking does disappear.
If you were to invest in Altria, you’d get a yield of 5.18%. You’d also get a super stable company that has shown 3.4% sales growth over the last year and a 23% value for income growth. The debt is a little high, but this company will keep on trucking. With a 17% profit margin, I don’t see why you’d say ‘no’.
These three companies would make up a solid portfolio. There’s no doubting that, at least in my mind. I’d think in terms of stability I’d have to go the way they come in the article. Shell is the first for me, they make a ton of cash, pay a big dividend and have lots of directions in which they could turn. With increasing foreign sales, LMT is definitely a buy as well. Altria is strong, even despite further incoming legislation. If the legislation scares you, stay away. I don’t think the government plans on destroying this huge industry any time soon though.
Ash Anderson has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!