The stocks in the following list have only two common features. They provide attractive yields and I either own each of them personally in an IRA or have purchased them for other family members in their IRAs. Most are corporations that pay common dividends although one is a REIT and two are partnerships where payouts are called distributions and based on earnings. Three are telcos, two are in the energy sector, one is a mortgage REIT and there are one each in food, entertainment, pharma and electric utility segments. Some dividends appear safe, others can be expected to grow, others require a belief in management statements and at least one can be expected to decline.
AT&T (T) – AT&T is the first of three telcos on this list. Over the past 10 years it has increased the dividend by nearly 70% and the current yield of its annual $1.72 annual dividend is about 5.7%. T will probably be distracted over the near term as it goes for approval of its acquisition of T-Mobile. If it does get the approval of shareholders and the various regulatory agencies, there will be additional distractions during integration. This provides an opportunity to use dividend reinvestment plans to increase one's shares while there is pressure on the price and should nicely enhance the return for long term investors. The original AT&T was once known as a widows and orphans stock because of the consistency of its dividends and stability of earnings. This new incarnation seems ready to carry that mantle.
B&G Foods (BGS) – B&G Foods and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-stable foods across the United States, Canada and Puerto Rico. Their products, including Cream of Wheat cereal, Ortega salsa, Polaner jellies and B&M baked beans, compete for supermarket shelf space with other food product giants like the Frito Lay and Quaker Oats divisions of PepsiCo (PEP) or H.J. Heinz Company's (HNZ) baked beans. The dividend was recently increased from $0.68 to $0.84 and currently yields close to 5%.
Cedar Fair, L.P. (FUN) – Cedar Fair is a publicly traded partnership that owns and operates amusement parks, water parks and hotels. From 1994 until early 2009 the annual distribution had been steadily increased to nearly $2. The quarterly payout was reduced to $0.25 per quarter for the last 3 quarters of 2009 and then eliminated until a $0.25 payout was made in December of 2010. Following distributions totaling $0.33 during the first 2 quarters, management stated the following, "Assuming results continue to meet our expectations, we intend to pay $1 per unit in distributions in 2011. To that end, the board has already declared the quarterly cash distribution of $0.10 per limited partner unit payable on June 15. Looking ahead with that same assumption, our goal is to double the $1 per unit distribution in 2011 to $2 or more per unit in 2013." Q Investments owns a significant stake and has been an activist shareholder and will likely keep pressure on management to meet that goal. Based on a current unit price under $20, yield for 2011 would exceed 5% and 10% by 2013. And for those with a less serious bent, what's not to like about a company with the ticker symbol of FUN?
Exxon Mobil (XOM) – Okay, I know the first thing everyone is going to say is "What is a company with a yield of less than 2.5% doing on this list?" The world's increasing appetite for oil and gas has shown no signs of abating and Exxon is as much a company that manufactures cash as it is one that produces and manufactures petroleum and petrochemical products. They have used that cash to double the size of the dividend over the past 10 years and have repurchased billions of dollars of shares over same period of time. I look for the combination of increasing dividends and an increase in the share price to satisfy most investors. Any company that has so consistently returned capital to shareholders makes this particular list.
FirstEnergy (FE) – FirstEnergy Corporation is a diversified energy company headquartered in Akron, Ohio, and includes the nation's largest investor-owned electric system and a diverse generating fleet with a total capacity of more than 23,000 megawatts. Over the past 13 years the company has periods where the dividend has remained flat for several years at a time and other periods where there were annual increases of $0.20. The current quarterly dividend of $0.55 has been in place for 3.5 years and provides a yield of more than 5%.
Frontier Communications Corporation (FTR) – Frontier is the largest pure rural telecommunications carrier in the United States marketing voice, high-speed Internet and satellite video services. The company paid a $0.25 quarterly dividend from December of 2004 until a complicated acquisition of a portion of Verizon's business in mid-2010. The acquisition dramatically increased the number of shareholders and the annual dividend was cut from $1 to $0.75. Management has been working towards implementing cost savings and growth synergies as they integrate the acquisition as evidenced by their results and comments in the year end conference call, where they also emphasized the importance of maintaining the dividend: "The fourth quarter results represent another sequential improvement in many areas of the business, which puts us on the path to deliver on our commitment to provide investors with growth in cash flow and improved balance sheet and a secured dividend." Frontier has an extremely attractive yield of more than 9.5% that appears safe, although like other telcos, specifically AT&T and Verizon (VZ), with defined benefit retirement plans with medical benefits there is always a risk.
Invesco Mortgage Capital, Inc. (IVR) – Invesco is a real estate investment trust (or REIT) that acquires, finances and manages residential and commercial mortgage-backed securities and mortgage loans. This is by far the riskiest investment on this list. The company has a very short history and its current yield of more than 17% is dependent on interest rate spreads. What is also clear is that the 8 quarterly distributions over the past 2 years (including the $0.97 distribution announced on June 9th) have averaged $0.89. When the Fed policy on interest rates changes, one can expect the distributions and earnings to fall. The only question that investors chasing this high yield need to answer is whether they can get out through a very crowded exit while holding on to their gains.
Merck & Co. Inc. (MRK) – Merck is a pharmaceutical company that has spent a large portion of the past decade making attorneys wealthy. Whether it was Vioxx or Paxil or shareholder suits or the recently settled dispute with Johnson & Johnson over the rights to market Remicade, it seems I read more about Merck court cases than about their discoveries in the lab. Maybe it's the yield of 4.2% or the Schering-Plough acquisition in late 2009 or that they survived the loss of patent on Fosamax or that they have been through all this without cutting the dividend, but I like the prospects of Merck. Or maybe it's just because they employ a lot of people in my home state of NJ and I really wanted a pharma company in my portfolio.
Suburban Propane Partners LP (SPH) – Suburban Propane is one of the nation's leading marketers of propane gas, fuel oil, and related products and services with approximately 1,000,000 residential, commercial, industrial and agricultural customers through approximately 300 locations in more than 30 states. It is another local NJ company with an annual $3.41 cash distribution that represents a yield of more than 6.5%. The distribution has been in place since 1996 and has grown from $2 per year in the 1997-98 to its current level, an increase of 70%.
Verizon Communications, Inc. – Verizon is the third telco in the group. It is a descendant of the RBOC's spun off by the original Ma Bell as part of the monopoly's break-up that was presided over by Judge Greene. (Note that the AT&T that exists today was SBC communications, another of the RBOC descendants.) The $1.95 annual dividend results in a 5.5% yield. The dividends began in 1984, and although the increases have ranged from non-existent to painfully small over the past 10 years, they have never been decreased.
These 10 stocks are a significant part of my IRA for several reasons. Much of the total return of the S&P 500 since the crash of '29 has come from dividends. Most of these stocks have secure and growing dividends. Reinvesting the dividends will allow this portion of my IRA to grow nicely and will require a minimum amount of attention. They should also provide a source of consistent cash flow when it comes time to pull funds out of my IRA during retirement. The wild cards like XOM, IVR, and FUN might just provide the boost for the upgrades on those retirement trips, and I'm willing to balance that added risk with the potential reward.