Monday, September 15, 2014

High Yield Companies for Current Income

I monitor my portfolio holdings quite regularly, looking for material events concerning the companies I hold. As a dividend investor, the best news is when a company I hold raises dividends. This is a confirmation that the analysis I had done in the first place was valid, and that the decision to purchase a stock in a company after that painstaking process is indeed paying higher dividends. Rising dividends are important, because they ensure that the purchasing power of my income is at the very least maintained if I were to drop out of the rat race and retire tomorrow.

With dividend investing, success is very tangible, one dividend check at a time. Dividends represent money I earn without having to be physically present at a location or answer to a boss. Thus, with each dividend check I am getting one step closer to retirement.

Two of my holdings raised their dividends in the past week. Those include:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company raised its quarterly dividend by 6.40% to $1/share. This was the slowest dividend increase since PMI was spun-off from Altria (MO) in 2008. The company is facing some headwinds worldwide, but despite those is still able to generate strong cashflows to pay increasing dividends and repurchase shares. I would probably have to lower my earnings and dividend growth expectations to 6% - 7%/year for the foreseeable future. However, a 6%-7% annual growth in dividends from a company yielding almost 4.80% is a pretty good achievement. The shares are still attractively valued at 16.30 time forward earnings. Check my analysis of PMI.

Realty Income Corporation (O) is a publicly traded real estate investment trust. The REIT increased its monthly dividend slightly to $0.1831/share. This was less than 1% higher than the monthly amount paid at the same time in the preceding year. Realty Income has managed to increase dividends by 6%/year over the past decade. This dividend achiever has also managed to boost distributions to its patient long-term investors for 20 years in a row. This includes a 20% increase in dividends in 2013, which is probably one of the reasons for the slow raises in 2014. Going forward, I would expect this REIT to manage to grow distributions to match or slightly exceed the rate of inflation. Since the company is already a high portion of my income portfolio, I do not plan on adding any more funds there. Check my analysis of Realty Income.

While I am not a big fan of looking for high yields  for the sake of looking for high yields, I understand that some investors who are retired need above average yields today. I believe that companies like the above mentioned could be the types of companies to research thoroughly, before you decide if they are a good fit for your portfolio or not. The two are a good fit for my portfolio, and provide quite a nice stream of growing dividend income, which is then reinvested into other attractively priced income producing assets.

As an added bonus to my readers, I am also going to mention another recent dividend increase, which is not from a high yield company. However, I believe that this company can achieve the type of dividend growth to reach high yields on cost in the future for those who manage to acquire the shares at attractive valuations. The company is Yum! Brands (YUM), which operates quick service restaurants in the United States and internationally. It operates in six segments: YUM Restaurants China, YUM Restaurants International, Taco Bell U.S., KFC U.S., Pizza Hut U.S., and YUM Restaurants India.

The company raised its quarterly dividend by 11% to 41 cents/share. This marked the tenth consecutive annual dividend increase for this dividend achiever. The stock is overvalued at 21.30 times forward earnings, but it does have potential for a lot of international growth. I hold a small position in it, and would like to add some more at 2.50% entry yields. Check my analysis of Yum.

Full Disclosure: Long PM and O, YUM

Relevant Articles:

How to Generate an 11% Yield on Cost in 6 Years
How to read my weekly dividend increase reports
How to Retire Early With Tax-Advantaged Accounts
How to read my stock analysis reports
Should I invest in AT&T and Verizon for high dividend income?

7 comments:

  1. I've had my eye on YUM as well...waiting for the 2.5% yield point. Glad to see it get hammered for the China meat issue. Dividend stocks love bad news. And KFC is good.

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  2. DGI,
    I have my stocks with a company that puts the commission in the purchase price so my cost is higher and my yield is lower. Do all companies do this? Suzanne

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  3. DGI, Is a stock split really a 50% dividend? Your shares are not worth any more you just get 2 for 1 with the dividend and share price cut in half. How can a company get away with calling it a 50% dividend?

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  4. Hi,

    I came across your blog about a month ago and am finding it to be a really good resource. Thanks for all the effort and keep up the good work!!

    James

    ReplyDelete
  5. Hi DGI, from what I have read, O will do its large dividend increase for the year in Q4 instead of Q3 from now on. So hopefully it isn't done yet....

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