Companies that generate more cash than they know what to do with often return it to shareholders in the form of dividends. Think of it as a reward just for being a committed investor in a particular business. A dividend yield is the percentage of the current stock price at which the dividend amounts in a year.
A high dividend yield can sometimes be a warning signal to investors, as it could indicate that investors want a high yield to compensate them for holding a risky stock (a lower stock price creates a dividend yield). higher). All three stocks have 6% dividend yields and strong financial data to back them up.
1. A burning dividend
Altria Group (NYSE: MO) is the largest tobacco company in the United States. She owns the famous brand of Marlboro cigarettes. The company pays investors $ 3.60 per year, which works out to a dividend yield of 7.07%.
He recently increased his dividend by 4.7%, marking the 56th increase in his payout in the past 52 years. Smoking is a declining habit in the United States, where Altria operates almost all of its business. However, tobacco products have strong pricing power due to their addictive nicotine content. The price increases were able to offset the volume declines and steadily boost profit growth over the years.
Altria shipped 126.6 billion cigarettes / cigars in 2014 and only 103.2 billion in 2020. Despite this sharp drop in volume, the company’s earnings per share fell from $ 2.56 to $ 4.36 on the same period – and its annual dividend of $ 2.00 per share to $ 3.60. Management maintains an 80% dividend payout ratio. So as long as Altria can steadily increase its results, investors can count on generous dividend payments to keep it going.
2. Paging huge dividends
Omega Health Investors (NYSE: OHI) is a real estate investment trust (REIT) that invests in healthcare assets, specifically long-term care facilities and assisted living facilities. Real estate investment trusts are companies structured to require them to pass the majority of their profits to their shareholders, in return receiving favorable tax treatment from the government.
This REIT pays a quarterly dividend of $ 2.68 per share, creating a dividend yield of 8.09% on its current share price. REITs calculate their dividend payout ratio using their business’ cash flows, known as “operating funds”. Omega’s dividend payout ratio is 82% based on the company’s 2020 adjusted operating funds of $ 760 million.
The population of the United States is growing and aging simultaneously. Omega management estimates that by 2040, the population aged over 65 in the United States will reach 80.8 million, up from 56.1 million in 2020. This is expected to drive long-term demand for residences. -services, giving Omega Healthcare an opportunity to grow steadily and support its dividend distribution over the next few years.
3. Dividends flow like oil and gas
Enbridge (NYSE: ENB) is one of the largest energy companies in North America. It owns and operates a network of gas and oil pipelines. Many oil and gas companies are sensitive to the underlying prices of oil and gas commodities. A company that drills and sells oil will earn more money when oil prices are high and less when prices are low. The tendency of commodity prices to rise and fall over time makes them potentially volatile investments.
However, Enbridge is a pipeline company. The pipelines transporting oil and gas from the fields to the refineries are essentially the “toll booths” of the industry. They make money from the amount of oil and gas flowing through their pipes, regardless of the price of the raw materials at that time. Enbridge is much less volatile for this reason and has proven to be a reliable dividend payer, increasing its payouts over the past 26 years.
The company pays a total annual dividend of C $ 3.34 per share (approximately $ 2.64). This gives it a dividend yield of 6.63%. As long as the world continues to use oil and gas, Enbridge should continue to put money in the pockets of shareholders.
Here is the bottom line
What do these three companies have in common? All three have stable business models that continue to generate profits year after year. Tobacco, oil and gas, and telecommunications won’t thrill growth investors, but a stranglehold on a mature industry can result in years of cash flow and dividends for income-oriented investors, which is exactly what it is. what Altria, Omega and Enbridge provide.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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