By Siraj Sarwar
Retirees can get higher returns by investing in high-dividend stocks, instead of sticking with government bonds. Dividend stocks are typically characterized by good cash flows providing strong support for dividends. Even when capital appreciation in such stocks tends to be somewhat lower, investors benefit from consistently stable cash flows. In the end, such stocks can help lessen the volatility of a retiree's investment portfolio. They become highly valued assets in such a bundle of investments.
In this article, I pick four companies for consistently growing returns. These companies have a long history of consistently increasing returns. These companies have strong revenue growth and solid earnings. All these companies have strong cash flows to support growing returns for share holders.
Altria Group, Inc (MO) manufactures and sells cigarettes, other tobacco products, machine-made large cigars and pipe tobacco. Altria offers one of the best quarterly dividends of $0.44 cents per share. For the full year of 2012, the company paid a dividend of $1.70 per share, yielding at 5.41%. As shown in the below table, over the years, Altria group has been consistently able to increase its dividends.
Years | Dividend |
2012 | $1.70 |
2011 | $1.58 |
2010 | $1.46 |
2009 | $1.32 |
2008 | $1.16 |
Morningstar.com
The company's exceptional financial performance led it to consistently increase its dividend. Over the past 3 years, on average, Altria was able to increase revenue by 1.3% while the industry average stood at negative 1.9%. In addition, it has a high margin on sales. Its operating, and net margins stand at 41.4% and 23.9% respectively.
Figures in Million | 2010 | 2011 | 2012 |
Operating cash flow | $2,767 | $3,613 | $3,903 |
Capital expenditure | ($168) | ($105) | ($124) |
Free cash flow | $2,599 | $3,508 | $3,779 |
Morningstar.com
Furthermore, Altria has shown solid cash flows; though, it was consistently able to increase its cash flows. At the end of 2012, its operating cash flow stretched by $1,136 million over the past two years. Its free cash flows also demonstrate a similar trend. At the end of 2012, the company had generated $3,779 million in free cash flows while its dividend payments stood at $3,400 million.
Additionally, over the past three years, Altria has been working on a share repurchase program. For the full year of 2012, Altria has returned nearly $1 billion to shareholders in its repurchase program. Despite challenging environments, the company's cost cut measures together with strong earnings and cash flows led it to return substantial value to share holders. At present, Altria looks like a safe pick with its solid financial position and potential to generate strong cash flows.
Main Street Capital Corporation (MAIN) is an investment firm providing customized debt and equity financing solutions to lower middle market companies. Main Street is famous for paying constantly increasing dividends. At present, the company offers a monthly dividend of $0.155 cents per share. For the full year of 2012, the company paid dividends of $1.725 per share, yielding at 5.65%.
Figures in Millions except EPS | 2012 | 2011 | 2010 |
Revenue | $91 | $66 | $37 |
Operating Income | $59 | $39 | $19 |
Net Income | $104 | $63 | $39 |
Earnings Per Share | $3.53 | $2.76 | $2.38 |
Morningstar.com
As the above table demonstrates, over the years, the company has shown exceptional financial performance. Over the past three years, on average, it has been able to increase its revenue by 78.2%. In addition, it has a high margin on sales. Its operating margin stands at 67.5% when the industry average stands at 23.8%.
As another representation of its strong financial position, the company has been able to increase its dividends three times in the past year alone. Below are the few key metrics demonstrating its ability to sustain and increase its dividends.
- Annual sales growth past five years 48.64%
- Earnings Per Share [EPS] growth past five years 64.17%
- Profit Margin 115.8%
Calumet Specialty Products Partners L.P. (CLMT) is a producer of hydrocarbon products in North America. The partnership has a long history of distributions. At present, the partnership offers a quarterly distribution of $0.65 cents per unit. For the full year of 2012, the partnership paid distributions of $2.30 per unit, yielding at 7.57%. In the past five years, the partnership has been able to increase distributions by nearly 44.44%. Below are the few key metrics displaying its financial situation.
- EPS past five years 6.01%
- EPS next five years 29.35%
- Rev Growth (3-Year Avg) 36.1%
- Payout ratio Trailing Twelve Months [TTM] 65.7%
Over the years, the partnership has been able to consistently increase its revenue. In the past three years, on average, the partnership has been able to expand its revenue by 36.1%. Since 2010, it has been able to increase revenue from $2 billion to $5 billion by the end of 2012. In addition, the partnership is capable of converting sales into profits at high margins. In the TTM, its net margin stands at 8.6% while the industry average stands at only 1.4%.
Furthermore, over the years, the partnership has shown strong cash flows. At the end of 2012, Calumet's operating cash flow stood at $380 million, representing an increase of $316 million. Its free cash flows are also expanding at a high pace. At the end of 2012, its free cash flow stood at $323 million, representing an increase of $309 million over the past year. With solid financial position and strong future projections, it can be a valuable inclusion for income portfolio.
Invesco Mortgage Capital Inc (IVR) focuses on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. Invesco's business mainly depends on government policies and market conditions. Due to the recent financial collapse and the Fed's Operation Twist, Invesco had to cut dividends. The mREIT cut its dividend from $1 per share to $0.65. However, it has been able to sustain similar quarterly dividend of $0.65 per share for the last six quarters.
Invesco has a solid investment strategy, which led it to achieve massive earnings in a difficult macroeconomic environment. At the end of Q4, it was able to generate net income of $90.6 million, compared with the earlier period of $84.1 million. Furthermore, the mREIT's book value per common share stands at $20.83, a decrease of 0.5% over the past quarter.
The mREIT has a diversified portfolio and smart investment strategy, which helped it to sustain dividends. Additionally, it has a flexible investment strategy, which allows it to make quick changes with the changing market requirements. Recently, it moved its concentration from agency Residential Backed Mortgage Securities (RBMS) to non agency RBMS and Commercial Mortgage-Backed Securities (CBMS) as the housing market kept growing after the Fed's initiatives. With recent changes in the Q4, the mREIT is well-positioned for another profitable year in a difficult macro-economic situation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by Siraj Sarwar, one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.
