When interest rates are low, finding a place to store your money and still get a decent return can be tough. One alternative is to invest in the common stock of companies paying dividends.
We used the following criteria to create a small portfolio of companies which are both investor-friendly (dividend yield above 3%) and large enough to absorb small financial shocks (market cap $10B to $200B).
1. Listed on NASDAQ
2. U.S. Companies
3. Dividend Yield above 3 percent
4. Market Cap: $10 billion to $200 billion
5. Common household names and bellwethers of the industries in which they operate
CME Group Inc.
Consumer Goods-Toys & Games
American Capital Agency Corp.
1 Based on market prices on Feb. 26, 2013.
Intel Corporation (INTC), founded in 1968, is based in Santa Clara, California. The chip-maker designs, manufactures and sells integrated digital technology platforms worldwide. Despite a recent drop in profits, Intel's latest earnings beat analysts' estimates. Though the short-term outlook may not seem very attractive, the company's long-term growth will be driven by its aggressive pursuit of R&D, capex, and other ventures. Additionally, the company's global semiconductor sales in December were up 9.7% from April and 2% from the previous month. Intel's successful transition from PCs to mobile devices, with its simultaneous introduction of new products like the Atom chip powered by Windows 8 smartphones, will also boost the company's growth in this increasingly mobile era.
Mattel Inc. (MAT), founded in 1945, is headquartered in El Segundo, California. The company, along with its affiliates, designs, manufactures and markets various toy products, including fashion dolls and accessories, vehicles and play sets. The toy company recently posted strong full year results, with its net income consistently increasing over the last five years. Dividends are also strong, showing a 92% increase since 2008. Mattel's strong position and continued growth is reflected in the repurchase of its 1.4 million shares of common stock in the fourth quarter of 2012, with its full year's figure standing at 2.3 million shares.
American Capital Agency Corp. (AGNC) was founded in 2008 is Based in Bethesda, Maryland. The company operates as a real estate investment trust (REIT), investing in residential mortgage pass-through securities and collateralized mortgage obligations. Despite an extremely hostile business environment for Mortgage Real Estate Investment Trusts (mREITs) in recent years, American Capital Agency remains firm, maintaining an enormous quarterly dividend of $1.25 per share. The company also recently posted robust fourth quarter results with a net income of $126 million. Reflecting strong management and asset allocation, the company has had an economic return of 30% in the last four consecutive years. This mREIT's growth will continue as it is expected to reap additional benefits from its purchase of Agency MBS on a forward settlement basis via the TBA dollar roll market.
Wynn Resorts (WYNN) is based in Las Vegas, Nevada was founded in 2002. The casino company deals in the development, ownership and operation of destination casino resorts. Wynn Resorts can be assured decent growth in 2013 and beyond as U.S. and Chinese markets continue to recover. Many new opportunities will come for the gaming company in U.S., as more states begin to approve gambling venues in an attempt to offset rising deficits by adding new revenue streams. According to a study by Global Industry Analysts (GIA), land casino gambling will witness a continued growth in the future. Wynn Resorts also plans to unveil an online gambling venture, which will provide a whole new avenue for growth. The company has already applied for an online poker license in the state of Nevada and is believed to be in talks with Zynga (ZNGA) to deliver a "real cash" online poker platform.
CME Group (CME) formerly known as Chicago Mercantile Exchange Holdings, was founded in 1898. The company manages the CME, CBOT, NYMEX and COMEX futures exchanges globally. Though CME reported a drop in earnings for the latest quarter, its the volume increased when compared to earlier quarters, signaling a positive change. The year 2013 is expected to be a promising one for the exchanges, including CME, because of changes in derivatives trading regulations. Because of this, the company plans to invest significantly in an advertising campaign aimed at boosting growth and restoring faith in derivatives markets.
Financials Support the Dividend:
Total debt to Equity
CME Group Inc
American Capital Agency Corp.
Net margin, asset turnover and debt to equity are metrics are similar to those used in Dupont analysis and can be used help understand the strength of the company's financials. Based on the indicators in the above chart, it is evident that all five companies have a good net margin, strong asset turnover ratios, and a healthy amount of leverage relative to the their industries. While Wynn and Mattel both have net margins on the lower side, this is expected due to their strong asset turnover ratios.
Each of these five tickers would be good additions to a long-term investor looking for an alternative to low yielding securities. The historical analysis proves that these companies have been consistent with dividends, and the above analysis on current indicators (net margin, asset turnover, etc.) proves that all five companies have strong financials, which will contribute to future growth and the assurance of future dividends.