Increase Your Returns With These Cash Cow Stocks
Justin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is a lot of volatility in the market right now. Dividends can offer protection to your portfolio when the swings of the market are treating your portfolio like a yo-yo. Companies that have a history of growing their dividends over time provide protection from inflation as well as evidence that their business model is working to ensure long-term earnings growth. These companies can give your portfolio some stability as well as growth through their consistently increasing returns to shareholders. These high cash flow companies have the ability to reward their shareholders through increasing dividends.
As you can see in the graphs below, these companies have provided price appreciation combined with increasing dividend payouts to enrich shareholders with market beating returns over the last 5 years:
McDonald's (NYSE: MCD)
source: Yahoo Finance
McDonald's is the world's leading fast food chain. They have approximately 34,000 locations across the world, and serve 69 million people each day. McDonald's is currently trading at 18 times trailing earnings. Their dividend currently yields 3.18%, and they have raised their dividend annually for 36 years running. They have grown their dividend at an average of 13.9% over the last 5 years. Shareholders have seen their yearly income from each share increasing well above the rate of inflation. The dividend also has plenty of room to grow as their current dividend is only 45% of their cash flow per share. I generally would feel safe with any payout under 60%. Furthermore with a beta of 0.37, your investment in McDonald's should stay nice and consistent even as the market bounces around on each new television headline.
Walmart (NYSE: WMT)
source: Yahoo Finance
Walmart is the biggest retailer in the United States. Walmart is currently trading at 14.4 times earnings. They have also recently approved a new $15 billion share repurchase program at the recently held annual shareholders meeting. This huge buyback program will reduce the shares outstanding by roughly 6% and give a nice boost to the earnings per share. Their ability to grow earnings is further aided by the pricing advantage they hold over their competition. Their scale of size enables them to achieve low costs and thus offer the lowest prices to their customers. Walmart shares offer a dividend yield of 2.57%. They have grown their dividend by 13.5% annually over the last 5 years, and have increased their dividend for 39 years. With dividends consuming only 24% of their cash flow per share - an investor can smile as the dividends continue to grow and pile up.Their beta of 0.34 will help stabilize your investment in Walmart from the ups and downs of the market.
Procter & Gamble (NYSE: PG)
source: Yahoo Finance
Procter & Gamble is the maker of various household brands such as Bounty, Crest, Dawn, Charmin, Duracell, Gain, Gillette, Vicks, and many more. Almost all of their brands are considered "staples" that consumers will buy in any economic environment. Their house hold brands dwarf their competition in reputation, as they have 24 billion dollar brands. This type of niche that Procter & Gamble operates in ensures that their profits will be consistent over the long term. This is evident in their streak of 57 straight annual dividend increases and their beta of 0.44. Procter & Gamble is also looking to emerging markets to find further revenue growth possibilities. Procter & Gamble trades at 19.9 times earnings, and sports a dividend yield of 3.10%. Investors shouldn't worry about any potential dividend decline - Procter & Gamble commits only 48% of their cash flow to dividends.
These 3 stocks provide some common characteristics. They all have a long history of consistent dividend increases. They all have a low beta to survive the volatile trends of the recent market environment. They also all have less then half of their cash flow committed to dividends. this is important as it leaves room to grow the dividend down the road, as well as fund growth opportunities. Perhaps the most important characteristic: all of the above companies are considered "best of breed." They have business models that establish them at the top of their industries, and in turn can be counted on to give your portfolio the spark it needs regardless of your time frame.
Justin Pope has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Procter & Gamble. The Motley Fool owns shares of McDonald's. 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!