With market volatility swinging higher this week, it pays to get some protection for your portfolio -- literally.
I'm talking about dividends, the cash payouts that many firms make to shareholders on a quarterly basis. If you've been ignoring dividends for your portfolio, you shouldn't. With corporate cash and investor anxiety both at all time highs, it makes sense to add some income to your portfolio; not only are dividend-payers typically more defensive stocks, their payouts reduce the overall volatility of your holdings.
Today, we'll take a look at firms that have been ratcheting their payouts higher.
The trickle of dividend-payers is continuing in December. All told, 17 stocks with a market cap of over $1-billion announced dividend increases in the last week. That's the same number of stocks as we saw in the previous week -- a good sign that dividend hikes aren't completely dropping off.
Historically, dividend stocks have been a good bet. Over the last 36 years, dividend stocks have outperformed the rest of the S&P 500 by 2.5 per cent annually, and they outperformed nonpayers by nearly 8 per cent every year, all while paying out cash to their shareholders, according to data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.
That's why we pay close attention to the firms that are shoveling more corporate cash to shareholders each week. With that, here's a look at seven of the stocks that hiked payouts in the last week.
$56-billion drug maker Bristol-Myers Squibb has had a strong year in 2011; shareholders have seen their stakes appreciate more than 25 per cent since the first trading day of January. Now management is upping the ante, hiking the firm's quarterly dividend by 3.03 per cent to 34 cents per share.
While that doesn't sound like much of an increase, BMY is already a perennially high-yielding stock (and one of the top-yielding drug stocks). Shares currently pay out a 4.08 per cent yield on current share price levels.
Bristol's pharmaceutical pipeline puts it a step ahead of most of its peers. The firm treats its pipeline like any good portfolio manager, diversifying away the risks of failure though exposure to a significant number of treatments as well as partnerships with peer firms.
Like most big pharma names, however, Bristol isn't immune from the patent drop-offs that are plaguing drug developers in the next several years. The firm will need to push its late-stage pipeline along if it wants to mitigate that downside.
Financially, Bristol-Myers Squibb is in solid shape, with a deep net cash position and considerable free cash flow generation abilities. That should secure the firm's hefty dividend payout going forward.
Medical device maker Stryker has a tight grip on the orthopedic market, developing and manufacturing everything from reconstructive joint implants to the scopes and surgical tools used in the operating room. The firm's niche focus is appealing -- with competition fierce in the medical device industry, Stryker's positioning ensures that revenues aren't as challenged by competitors.
That's not to say that there hasn't been some trepidation over the firm's outlook. Management has voiced concern over health care providers' reimbursement policies for costly orthopedic implants, and while the necessary nature of reconstructive implant surgery makes it less susceptible to economic headwinds, anything can spook investors in this market.
Growth has been consistently strong in the last several years. When investors see that Stryker can continue its expansion, shares should follow.
Stryker is another firm that's in a strong financial position right now. Like Bristol, Stryker has a net cash position and strong margins. That financial health helped to fuel management's 18.06 per cent dividend hike last week, which brings the firm's payout to 21 cents, a 1.8 per cent dividend payout at current levels.
Equity Residential is a $16-billion apartment real estate investment trust that has ownership interests in 451 properties that feature a total of 129,600 apartment units. The firm's geographic footprint is centered on major metropolitan areas where rent and demand for units are both high; New York, D.C., South Florida and Los Angeles are Equity Residential's four biggest markets.
As a REIT, Equity Residential is essentially an income-generation tool. By law, the firm is required to pay out the vast majority of its earnings directly to shareholders as dividends, a feature that allows the firm to skirt income taxes. Instead, shareholders pay taxes directly on their income from the firm.
While residential REITs have some major disadvantages compared with commercial REITs (laws concerning residential landlords are much more restrictive, and provide fewer options for recourse), Equity Residential operates at higher levels of profitability than most peers.
At 68.15 per cent, Equity Residential's dividend hike on Wednesday is the biggest of the stocks we're looking at this week. The move brings this REIT's yield up to 4.24 per cent.
Cleaning and sanitizing product maker Ecolab is another name that hiked its payout to shareholders in the last week and change. The company announced a 14.3 per cent dividend increase last Thursday, bringing its payout to 20 cents per share.
While the firm's 1.44 per cent yield hardly makes it a core-income holding, it's important to remember that payouts aren't static: Ecolab increased its dividend consistently during the recession.
Ecolab is the league leader in the cleaning and sanitation product business -- if you've been to a restaurant or hotel lately, there's a very good chance that Ecolab's products are sitting in the supply closet. The fact that customers are willing to pay a lot for sanitation is also important; cleaning products make up a very small chunk of a restaurant's costs, but they contribute a major part of its reputation. As a result, Ecolab retains more pricing power than most commercial vendors.
There's considerable room for Ecolab to expand internationally, particularly in emerging economies, where sanitation mandates are only just starting to catch up with Ecolab's existing markets. If the company can spend the resources on growing its base internationally, that investment should pay off considerably in the next several years.
Aetna , one of TheStreet Ratings' top-rated managed health care stocks, is the third-largest managed care organization in the country, providing health care benefits for more than 35 million Americans. That size gives Aetna the ability to heft its weight around when negotiating with healthcare providers, a necessary bit of leverage in an increasingly cost-conscious industry.
A recently activated provision of the recent health care reform legislation means that insurers are now required to pay out a minimum portion of premiums on subscriber care. While the move doesn't impact Aetna as much as some other peers, it certainly puts added pressure on operating efficiency for the healthcare industry.
Like most insurers, Aetna has a large benefits-plan-management business where the company collects fees in exchange for administering companies' own insurance programs. That business could become increasingly important for Aetna, particularly as legislation and market risk to the firm's massive portfolio weigh on investors. Aetna's scale makes the firm one of the best candidates to embrace the fee-based business more fully.
Last Friday, Aetna increased its quarterly dividend by 16.67 per cent, a move that ratchets the firm's payout to 17 cents per share. That's a 1.74 per cent yield at current price levels.
It's been a tough year for shares of Ameriprise Financial . Dragged down by weakness across the financial sector, the firm's stock has shed approximately 20 per cent so far this year.
If there's any silver lining in that statistic, it's the company's dividend payout: On Wednesday, management announced a 21.74 per cent increase in its dividend. That brings Ameriprise's yield up to 2.46 per cent.
Ameriprise is a diversified financial services firm with its hand in everything from asset management to insurance to financial planning. The key to this stock is the fact that it carries reasonably limited risk for the sector -- insurance lines carry lower leverage than most peers, and the balance of the firm's revenues come from fee-based businesses. For investors looking for exposure to the financial sector without the excessive balance sheet risks of most options, Ameriprise offers a good alternative.
In recent years, the company has been growing its asset management business, most notably with the acquisition of Columbia Management in 2009. With considerably less manager stickiness among investors, Ameriprise could benefit from good timing if it can set itself apart from rivals.
Roper Industries , one of TheStreet Ratings' top-rated electrical equipment stocks, is a diversified manufacturer that operates in a wide array of businesses, including medical devices, energy control systems, and radio frequency products. While those businesses may be disparate, they do provide considerable exposure to the industrial sector, something investors should consider if they're concerned about cyclical stocks.
Historically, free cash flows have helped to fund Roper's acquisition strategy in a big way, resulting in a firm that has a manageable debt load and ample balance sheet liquidity, two factors that'll help shareholders' peace of mind on the next cycle downswing. A very large chunk of recurring revenues make this firm stand out even more from other manufacturing names -- even if its dividend payout doesn't.
While management increased its dividend by 25 per cent on Wednesday, Roper's yield is just 0.66 per cent. Despite the paltry payout, the fact that Roper uses its cash internally on growth is a good reason for longer-term investors to keep this stock in mind.
Jonas Elmerraji is a contributor to numerous financial outlets, including Forbes and Investopedia.
Companies & investments Mentioned In This Article (7)
% 1,515 Stryker Corp.
% -- Equity Residential
% 4,290 Ecolab Inc.
% -- Aetna
% 300 Ameriprise Financial
% 2,739 Roper Industries