Three Dividend Stocks For a Safe Retirement Portfolio
Dr. Osman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This year has been an interesting year for the income investors. As a result of low interest rates, the money has flowed into high dividend stocks. Many companies have realized that, and increased their dividends in order to attract investors. I liked three companies in particular due to solid earnings growth and an impressive history of dividend increases. Companies with such dividend growth histories could be nice additions to a safe retirement portfolio.
ExxonMobil (NYSE: XOM) is an integrated oil and gas company that explores, produces, and refines oil around the world. In 2011 it produced 2.4 million barrels of oil and 12.1 billion cubic feet of natural gas a day. At year-end 2011, reserves stood at 17.7 billion barrels of oil equivalent (plus 7.3 billion for equity companies), 47% of which are oil. The company is the world's largest refiner and one of the world's largest manufacturers of commodity and specialty chemicals.
Exxon has increased its dividend for thirty years in a row; the last dividend increase came in April of this year. At the moment, the stock pays an annual dividend of $2.28, yielding 2.60%, meaning that the company increased its dividends by 21.30%. For the past 30 years, Exxon's dividends have increased at an average annual rate 6%.
The company generates massive amounts of cash through its operations. At the end of 2011, Exxon generated cash flows from operations of $55.3 billion. However, for the trailing twelve months, the operating cash flows have come down slightly to $53.7 billion. Nonetheless, cash flows from operations still remain strong.
Exxon's dividends and free cash flows have been moving together. At the end of 2011, the company paid cash dividends of $9.3 billion and generated free cash flows of $24.3 billion. However, for the trailing twelve months, Exxon free cash flows and cash dividends have moved in opposite directions. The company paid cash dividends of $10 billion, whereas it generated free cash flows of $20.8 billion. Free cash flows have come down, but the free cash flows to dividend coverage is still very strong.
The stock currently trades at a slight discount compared to the industry. It has a P/E ratio of 9.3, compared to the industry average of 9.6.
Walgreen (NYSE: WAG) is the largest retail pharmacy in the U.S., with about 7,900 drugstores located throughout the country. Prescription drugs account for about two thirds of sales, with most of the rest attributable to nonprescription drugs and convenience items such as packaged foods and household and personal care products. The company also operates in-store and work-site health clinics.
Walgreen has increased its dividend payments for 37 consecutive years. In June, the company raised its dividend payments by 22.20%. Currently, the stock offers annual dividend of $1.10 per share, yielding 3.10%.
The company has shown solid growth in its cash flows over the years. At the end of fiscal year 2011, Walgreen generated $3.6 billion in cash flows from operations. However, for the fiscal year 2012, the company generated $4.43 billion in operating cash flows.
Cash dividends and free cash flows have increased for the company during the last year. At the end of 2011, Walgreen paid $647 million in cash dividends and generated $2.43 billion in free cash flows. However, at the end of the fiscal year 2012, the company paid $787 million in cash dividends and generated $2.881 billion in free cash flows. The company's dividends are adequately covered with free cash flows. Strong growth in free cash flows and solid coverage allows the company to increase its dividend payments substantially.
Walgreen is trading at a P/E ratio of 14.8, compared to the industry average of 16.5. However, the stock trades at a slight premium based on P/B ratio of 1.9, compared to the industry average of 1.8.
GlaxoSmithKline (NYSE: GSK) is one of the largest biopharmaceutical companies in the world. It is also one of the best dividend paying companies on the market. The company exerts its power across many therapeutic classes, including cardiovascular, metabolic, respiratory, neurological, and antiviral, as well as vaccines and consumer products. Prescription drug and vaccine sales account for close to 80% of total sales.
The company has a long history of dividend hikes, and the most recent was a 10% increase in October. At the moment, the stock pays an annual dividend of $2.32 per share, yielding 5.32%.
Operating cash flows for the company are very impressive. For the trailing twelve months, GSK generated $4.6 billion in cash flows from operations. Operating cash flows came down during the past twelve months, mainly due to an increase in working capital.
At the end of last year, GSK generated $4.9 billion in free cash flows and paid $3.6 billion in cash dividends. Based on free cash flows, the payout ratio for the company stood at just above 73%.
At the moment, the stock is trading at a P/E ratio of 13.8 making it a relatively inexpensive investment compared to the industry average of 17.5.
All of the companies mentioned in the article have a solid history of dividends and strong free cash flows. These companies generate free cash flows in excess of dividend payments, which should provide stability to dividend payments. Furthermore, all of these companies have the history of raising dividends by generous amounts. I believe income hunters should definitely take a look at these companies. This rule particularly applies to current or soon-to-be retirees, where safety of the nest is essential.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. Motley Fool newsletter services recommend GlaxoSmithKline. 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!