With sequestration in full force -- many anticipating Q3 to be the weakest quarter of the year - it would take a lot of confidence on behalf of management to drastically increase a dividend yield right now. However, that's exactly what the following four companies have done, and upon further research, I think these companies offer a nice collection of diversification and security for the months that lie ahead.
The U.S. Will Continue To Drill
No matter what happens in the next year, the U.S. government's public plan to drill more domestic oil will continue. While we can not control the price of crude, and other oils, big sector oil service providers look ready to benefit. Such is the case with Helmerich & Payne (HP), a $6.5 billion contract drilling company.
For the last three years, Helmerich & Payne has seen strong revenue and margin growth. During this period, the company has increased its total assets while paying off its debt; which is a trend you want to see in a long-term investment.
On Wednesday, the company gave investors the ultimate sign of conviction when it increased its quarterly dividend by a whopping 233% to $0.50. Over the last five years, the company has now increased its dividend by 1,000% and is paying a forward yield of 3.15%. With high single digit growth, Helmerich & Payne was considered a good growth investment - but now is a high yield stock - and a company that continues to give back to its shareholders.
A Diversified Gaming Presence
The gaming industry is all but secular, however it is a large scale business. The $4.5 billion company International Game Technology (IGT) has a presence in every facet of gaming, from board to arcade to mobile and even casino-based games. The company is everywhere that games are available, and I believe that it is well-positioned, because of its software, to enter the market for online gambling if and when it is approved in the U.S.
While companies such as Electronic Arts (EA) and Zynga (ZNGA) continue to experience declining fundamentals, International Game Technology has apparently found the key to success, and is producing double digit growth. Moreover, the company is giving back to its shareholders.
For the last two quarters, the company has increased its quarterly dividend, from $0.06 to $0.07 and then once more to $0.08 last quarter. This willingness to give back to shareholders has pushed its shares higher by 35% since mid-November 2012. Therefore, I find it surprising that shares of the company have traded lower by 5% during the last five sessions, especially considering it once more raised its dividend by 12.5% to $0.09 on Tuesday. The company is now paying a forward yield of 2.06%, equal to the S&P 500, and has greater growth than the broader market. Thus, making it a great selection.
A Global Tech Company
The semiconductor business as a whole is by no means considered "safe" to most. However, Altera Corporation (ALTR) is among the largest of semiconductor companies with a global presence in all segments where semiconductors are used.
This is a very efficient company with operating margins of 32.73% and high single digit top line growth. The company trades at 19 times earnings, which is a slight premium compared to the S&P 500. However, Altera is very active in acquisitions, and has built a very strong balance sheet with over $3 billion in cash and continues to reduce its debt-to-assets ratio by the year (currently 10%).
On Monday, the company increased its quarterly dividend by an incredible 50% to $0.15. Therefore, the company is now paying a forward yield of 1.82%. While that may not seem large, the company has increased its dividend by 200% year-over-year. Hence, the company is giving back to shareholders rapidly, and is improving fundamentally, making it an attractive investment opportunity.
Country Cookin' Will Remain Strong
As someone who has lived in the south for the better part of my life, I can guarantee that no matter what happens in the economy, Cracker Barrel (CBRL) stores will stay packed. The company serves country food, and rest assured, there will always be a demand.
On Monday, the company reported earnings which showed a 5.2% increase in revenue, including growth in store traffic, retail sales, and restaurant sales. This is a stock that trades at just 0.86 times annual sales with a forward P/E ratio of 17. To me, combined with Cracker Barrel's growth, this compares favorably to McDonald's (MCD) and its price/sales of 3.57 and forward P/E ratio of 15.44 with near-zero growth.
As an indication of confidence, the company raised its quarterly dividend by 50%, when it announced earnings, to $0.75. The company has increased its dividend by more than 300% over the last five years and now has a forward yield of 3.30%. Looking ahead, with a strong yield and impressive growth, I think Cracker Barrel might be the best value in the restaurant space.
Here's the thing, the S&P 500 has produced a YTD gain of 13%, and has done so despite a 2.2% loss during the last five sessions. Right now, a lose lose scenario might be developing: If jobs and the economy grows then the Fed might cut stimulus. Either way, regardless of a strong or weak economy, the markets could fall. On Wednesday, we saw companies such as First Solar (FSLR) and Ford (F) trade with large losses; these are stocks that have performed exceptionally well this year.
The companies that I have highlighted include a well-established restaurant, a diversified tech company, a consumer company, and a domestic energy company. Each has positive growth, is attractively priced, and is giving back to shareholders. If in fact the market does trade lower, these are the type of companies that investors will seek. If the market trades higher, these stocks may still produce gains, and at the very least, have strong yields. In my opinion, this is where money should be put to use during the second half of this year.