3 Dividend Paying Companies for Your Watch List
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Researching a company for dividend income involves more than just looking at the dividend yield. Behind the stock ticker lies a dynamic business that generates the cash flow to support your dividend. As an investor you don’t want a company that compromises its financial position by paying out all of its free cash flow in dividends. Companies need to retain some of their cash flow to reinvest in the business. The three companies discussed below own iconic brands and sell products that people recognize, creating a consumer draw across the globe, and they pay out a reasonable portion of their free cash flow in dividends.
A “Real American Hero”
Toy maker Hasbro (NASDAQ: HAS) guided by its “brand blueprint” makes and sells popular iconic toy lines such as G.I. Joe, Transformers, My Little Pony, and Magic: The Gathering. In addition, it sells toys and merchandise under license from companies such as Walt Disney. Hasbro currently pays $1.60 per share per year in dividends yielding 3.6% as of this writing.
Every few years Hasbro reinvents these toy lines to renew interest for the current generation and to generate interest altogether for an entirely new generation of kids. The five brands mentioned above, through many incarnations, have flourished for decades.
Revenue for Hasbro declined 5% in 2012 due to the lack of a major blockbuster film. However, free cash flow increased 43%. The company paid out a reasonable 53% of its free cash flow in dividends last year.
The new Transformers theme park ride at Universal Studios should continue to generate consumer interest in that product line. The release of Transformers 4 in 2014 should generate hefty incremental revenue for Hasbro’s shareholders next year, resulting in a dividend boost and capital gains as the proverbial icing on the cake.
The golden arches
Just the thought of the golden arches conjures up images of hamburgers and McNuggets made by global restaurant chain McDonald’s (NYSE: MCD). As of this writing, the company pays dividends of $3.08 per share per year translating into a yield of 3.1%. The restaurant chain owns or franchises 34,000 stores globally, giving it a huge presence and purchasing power.
Last year, McDonald’s increased its revenue nearly 2%. Free cash flow decreased 11% due to higher income tax payments, adverse foreign currency translations, and increased capital expenditures. It paid out 74% of its free cash flow in dividend payments last year. This payout resides on the steep side however; its qualitative characteristics as a company still stand out.
A stalled stock price stemming from struggles from same store sales casts some doubt on McDonald’s prospects. However, according to this release, the company sees light at the end of the tunnel as the European and American consumers return to stores due to a wider array of offerings. History has shown that the long term investor who patiently awaits the company’s short term ups and downs will see significant rewards not only in dividends but in significant capital gains as well.
Have you eaten your Wheaties?
Food conglomerate General Mills (NYSE: GIS) sells iconic brands such as Cheerios, Wheaties, Hamburger Helper, and Lucky Charms. As of this writing, General Mills pays $1.52 per share per year in dividends translating into a 3.2% dividend yield. According to this news release, General Mills proudly proclaims its history of paying dividends without disruption or reduction for 114 years.
Last year General Mills’ revenue and free cash flow increased 12% and 96% respectively. It only paid out 46% of its free cash flow in dividends.
General Mills shows remarkable strength in mature economies such as the U.S., showing a 2% gain in its most recent quarter. Its international segment gives indication of the company’s future with a 24% increase in revenue. As with many mature companies most of General Mills’ growth will likely come from its international operations as emerging economies are introduced to products such as Cheerios and Wheaties.
On the whole, the products sold by these companies are highly recognized by the global consumer. Hasbro sells beloved toys and games passed down through the generations. McDonald’s brings convenience and taste to your meals. General Mills sells products for those who like breakfast and eating at home. This all serves as a good qualitative foundation for their dividend yields and make them a worthy addition to your Motley Fool Watch List (sign-in required).
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William Bias owns shares of McDonald's. The Motley Fool recommends Hasbro and McDonald's. The Motley Fool owns shares of Hasbro and 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!