I love collecting dividends. I don’t receive physical checks, but the satisfaction from email alerts is just as satisfying.
I also love when the stocks I bought before go up in price. Combining high yields with rising capital appreciation sounds as good a combo as what Hershey’sReese’s made with peanut butter and chocolate.
I searched through companies, finding stocks that combine high yields with a rising share price. I am sure by reading through you will find at least one company that fits your investing objectives, plus buying these stocks won’t increase your waist size like the very delicious Peanut Butter Cup I ate (strictly as part of my research).
International Paper
Background: International Paper is a global paper and forest products company complemented by an extensive distribution system. The company produces printing and writing papers, pulp, tissue, paperboard and packaging, and wood products. The company was founded in 1898 and is based in Memphis, Tenn. International Paper trades an average of 4.6 million shares per day with a market cap of $15 billion.
52-Week Range: $21.55 to $36.50
Yield: 3.1 percent
Investors are receiving $1.05 a share in dividend. Examining the dividend history of a company is a great way to help understand what we may expect in the future. While past payments don't guarantee future dividends, reviewing the past is the best way I know to predict the most likely future outcome. The three-year average amount International Paper has distributed to shareholders per year is 57 cents.
The payout rate (percentage of profit paid in dividends) is a manageable 42 percent, with increasing profits estimated for next year.
The shares are lower this week in reaction to downgrades by more than one analyst. It doesn’t appear they lost the Dunder Mifflin account, but there have been a mix of adjustments in earnings estimates in the last couple of months.
From a technical perspective, the chart remains in a strong bull trend, albeit with near-term weakness that increases the attractiveness. After falling about 10 percent from recent highs, International Paper is priced to buy again. Currently, the short interest based on the float is small and not a big concern. Short interest is 2.1 percent.
American Capital Agency
Background: American Capital Agency is a newly organized Delaware corporation formed to invest exclusively in single-family residential mortgage pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. government agency or a U.S. government-sponsored entity. The company will elect to be taxed, and intends to qualify, as a real estate investment trust for federal income tax purposes. American Capital trades an average of 5 million shares per day, with a market cap of $12.5 billion.
52-Week Range: $22.84 to $36.72
Yield: 13.63 percent
You might be wondering if I made an error in the yield. Nope, it’s not a mistake, and unlike many stocks with oversized dividends, few are expecting the dividend to drop anytime soon.
To assume that the risk isn’t at least slightly elevated is naive, but the Federal Reserve with QE3and a bottomless checkbook is providing incredible lift in real estate related stocks.
When will the party end? No one knows, but expect a significant drop in share price when the market re-prices the yield spread American Capital is currently receiving.
American Capital is also juicing returns through leverage, which may present risks that are difficult to fully price in. Based on the surface level numbers, the model appears to be solid for the near term, if the Fed keeps the party going and the stars remain aligned.
At the time of publication, shares began trading ex-dividend once again after the most recent dividend of $1.25 for a total of $5 annually. Because American Capital is a pass-through entity, the company is required to pay most of their earnings in dividends.
The minimum payment requirement tends to make dividend payments relatively volatile because of the ups and downs of profits. In the last three years, the average dividend paid per year was $5.45 per share.
If you’re in the mood to allocate capital into “high”-risk mortgage-backed income, albeit government-backed mortgages, American Capital is worth a look. Of course, if American Capital “only” makes the $3.77 that analysts estimate, don’t expect $5 in the next year for dividends.
I won’t likely buy shares, but I may trade in the options that are available for essentially zero time premium in front of ex-dividend dates. The risk of a price drop resulting from a decline in dividend payments is too great for me to entertain.
In the last month, the stock performed well with a 7.7 percent increase and the last reported short interest is small at 1.4 percent.
Applied Materials
Background: Applied Materials develops, manufactures, markets, and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. The company was founded in 1967 and trades an average of 14.4 million shares per day with a market cap of $15.3 billion.
52-Week Range: $9.70 to $13.94
Yield: 3 percent
Investors received 36 cents annually in dividend payments. I want to see increases and we have them for the last three years and over the last five years.
In the last three years, the company paid an average of 27 cents in dividends. I have no way to know if we can expect the trend to continue, but I put a lot of weight into the past. Dividends have moved up a headline-grabbing 13.4 percent on average per year during the last five years.
Analyst opinion is mixed. Applied Materials only has six “buy” recommendations out of 17 analysts, and two recommend selling. The average analyst target price for the shares is $13.04. The upside is partially masked by the recent volatility in earnings and price.
Shares are still relatively cheap. The mean fiscal year estimate price-to-earnings ratio is 16.5, based on earnings of 73 cents per share this year.
From a technical analysis view, shares are trading within a bullish flag and holding above the 200-day moving average.
As long as the price remains above the key 200-day moving average, it’s a “buy.” I would not be too quick to take a stop loss. The last reported short interest is only 1.5 percent, and nothing I would worry about.
Freeport-McMoran
Freeport McMoRan Copper & Gold is engaged in mineral exploration and development, mining, and milling of copper, gold, and silver in Indonesia, and the smelting and refining of copper concentrates in Spain and Indonesia. The company was founded in 1987 and trades an average of 20.3 million shares per day with a marketcap of $40 billion.
52-Week Range: $28.85 to $48.96
Yield: 3.02 percent
Analysts are in love with this company. Freeport-McMoRan is sporting 16 “buy” or “strong buy” from a total of 16 analysts covering the company. The average analyst target price is $50.53. If the analysts are correct, that's about 25 percent more upside.
What is even more appealing is the fat dividend. This miner pays out $1.25 a year, but that amounts to less than one third of profits. Profits are expected to rise, which in turn makes me believe another dividend hike will be followed by another and another.
The past doesn’t guarantee the future; however the payment history does provided a map. Based on the last five years, the board really enjoys raising the dividend payout. Dividends increased 9.9 percent on average per year. As long as the payout rate stays in check, the increases are likely to continue.
Currently, the short interest based on the float is not a big concern. Short interest is 2.7 percent. Without a red flag from building short interest, I believe a fair target entry price of near $40.50 is reasonable. After moving up from trading near $36, we don’t want to see the shares get too far ahead of the curve right before buying.
JPMorgan Chase
Background:JPMorgan Chase is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. The company was founded in 1823 and trades an average of 25.4 million shares per day with a market cap of $156.5 billion.
52-Week Range: $27.85 to $46.49
Yield: 2.9 percent
Investors receive $1.20 a year in dividends even after traveling through the financial meltdown that took a few of Morgan’s peers over the cliff. The dividends are up from the previous three-year average of 51 cents. I have no way to know if we can expect the trend to continue, but I put a lot of weight into the past.
The average analyst target price for JPMorgan is $45.24, and I think an ideal entry is $40.25. Shares have to retrace lower by a slight amount after a brisk move higher in the last week to reach the entry price.
It’s no surprise to me that the shares are reacting favorably to the Fed’s announcement of QE3. Banks have a lot to gain from the nearly free and easy profits QE3 delivers. The added benefit of an improvement in the housing market helps banks in a big way also.
Banks are not currently favored, so the mean fiscal-year estimate price-to-earnings ratio is 8.8, based on earnings of $4.68 per share this year. By my standards, an earnings ratio for Morgan under 10 is a sweetheart deal. Still, don't chase it, and let the market take a breath.
The last reported short interest is small. Short interest is only 1.1 percent.
General Electric
Background:General Electric operates as a technology and financial services company. GE trades an average of 46.2 million shares per day with a market cap of $232.8 billion.
52-Week Range: $14.02 - $22.37
Yield: 3.08 percent
GE currently pays 68 cents per share in dividends. After suspending the dividend during the financial crash, GE is brightly lit up once more. In the last three years, the average dividend paid per year was 56 cents per share and it’s reasonable to anticipate more increases to come.
From a technical perspective, the chart on GE looks rock solid on a bullish trend. The widely followed 200-day moving average is climbing on a steady and manageable incline that should breach above $20 within the next month.
GE’s mean fiscal year estimated price-to-earnings ratio is 14.2, based on analysts’ estimates of $1.55 per share in earnings this year. For a financial company relative to its peers, GE isn’t very cheap anymore, but for a once-again growth story, GE shares are attractive regardless of the source of earnings.
Even in the last month, the shares have increased 5.4 percent. Almost zero desire by short sellers to move against this stock. Short interest hardly moves the needle with only 0.7 percent of the float.
I use SEC.gov, Zacks.com, WSJ.com, Tradestation, and Reuters for my data. PE is generally adjusted based on an average number of shares and for operational earnings.
—By TheStreet.com Contributor Robert Weinstein
Additional Views: Financials — Best Way to Play Easing?
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Disclosures:
At the time of publication, the author held no positions in any of the stocks mentioned.