The pace of dire warnings in the stock market seems to have picked up lately.
They’ve been stoked by the recent declines in share prices for large tech companies. If you are either looking to make some safer choices or to draw income from your stock investments, the following screen might be a good place to start.
One cannot know when the bull market for stocks that began in March 2009 might end, but the high-profile and high-flying technology sector is certainly under pressure this earnings season. Two of the biggest drags on the sector have been disappointing subscriber growth numbers from Netflix NFLX, +0.74% and warnings of slower revenue growth and a rapid increase in expenses from Facebook FB, +0.89%
Big Tech — especially the FAANG stocks (Facebook, Amazon.com AMZN, -0.10% Apple AAPL, +0.20% Netflix and Google holding company Alphabet GOOG, -0.20% GOOGL, -0.23% ) — had been hot for so long that some investors may have forgotten that a company cannot increase its sales by double digits each quarter forever.
All companies eventually mature and post slower growth. That often focuses the mind on profits, margins, efficiency, expense control, defending the current business and expanding into new areas.
All this means that we just might be entering a phase where a value-oriented approach to picking stocks may outperform the growth-oriented strategies that have been working so well in recent years.
In a strong economic environment and with so many companies awash with cash, you might expect to see many increasing their dividends by tremendous amounts. But as Mark Hulbert explains, many management teams prefer to spend the extra cash on buying back shares, even at record prices. After all, nobody expects buybacks to always continue at any level, but if a company cuts its regular dividend payout, the shares typically take a terrible beating.
But what if a company bucks the trend and raises its dividend payout by 10% or more? This certainly indicates great confidence on the part of the board of directors that there’s plenty of cash flow to support the dividend — they see no chance of a dividend cut on the horizon. And a combination of an attractive dividend yield, a large recent increase to the payout and a long-term history of no cuts to the dividend may help identify some defensive stocks that also provide decent income.
Don Taylor, who has run the $19 billion Franklin Rising Dividend Fund FRDPX, +0.92% for 22 years, recently discussed how a rapidly rising payout can be correlated to good long-term stock performance.
Starting with the S&P 1500 Composite Index (made up of the S&P 500 SPX, +0.49% the S&P 400 Mid-Cap Index MID, +0.92% and the S&P Small-Cap 600 Index SML, +1.19% ), there were 199 stocks with dividend yields of 3.5% or higher as of the close on July 30, according to FactSet.
Among those 199 were 29 companies whose most recent dividend payout increases were 10% or more. We then looked back 46 quarters — to 2007 — to make sure that the companies had not cut their dividends. (A company may have initiated paying dividends recently). This pared the list to 10 companies. Here they are, sorted by dividend yield:
Company Ticker Industry Dividend yield as of July 30 Most recent increase in dividend payout Total return - 2018 through July 30 CareTrust REIT Inc. CTRE, +1.87% Real Estate Investment Trusts 4.94% 11% 2% Six Flags Entertainment Corp. SIX, +0.78% Amusement Parks 4.84% 11% -1% AbbVie Inc. ABBV, +0.85% Pharmaceuticals 4.20% 35% -3% Janus Henderson Group PLC JHG, +1.21% Investment Managers 4.10% 13% -14% Interpublic Group of Cos. IPG, +1.49% Advertising/Marketing Services 3.78% 17% 12% Edison International EIX, +1.45% Electric Utilities 3.68% 12% 6% Cinemark Holdings Inc. CNK, +3.04% Movies/Entertainment 3.67% 10% 2% LyondellBasell Industries NV LYB, +1.54% Chemicals 3.67% 11% 1% Wyndham Destinations Inc. WYND, +1.32% Hotels/Resorts/Cruiselines 3.60% 14% -12% Safety Insurance Group Inc. SAFT, +0.49% Property/Casualty Insurance 3.51% 14% 16% Source: FactSetYou can click the tickers for more information, including news, charts, ratings and financials.
The overall performance for the group this year has been mixed, but that’s a short period for serious long-term investors.
If you are looking to move away from stocks that dominate the headlines or for decent payouts from companies whose management teams are very confident about their business prospects, this may be a good place to start. If you see any stocks of interest, it’s important that you take the next step and do the research needed to form your own opinion about how well a company will compete in its main business of providing goods and services over the next decade.
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