I've been on a treasure hunt lately for dividend stocks. I'm not talking about those 3% yields you can find on some Dow stocks, which are perfectly nice, but something more substantial that is also reliable. I found three excellent stocks that are not only solid companies, but my assessment shows that they'll be able to pay these large dividends for some time to come.
My first selection is also on of my new favorite stocks, which I'll be writing more about. Cash Store Financial Services (CSFS) is actually a Canadian company that trades on both the Toronto and U.S. exchanges. I came across it because I'm a payday loan industry maven.
There are many things to like about Cash Store in regards to its dividend. First, almost all the Canadian provinces recently codified their regulations concerning payday loans, which are short-term loans against a customer's next paycheck. This removes all the regulatory uncertainty surrounding the company, which is the largest provider of the service in Canada with almost 600 stores. Not only is the regulatory uncertainty gone, but the legislated rates average some 40% higher than the U.S. average.
The company has consistently managed its cash flow very well, growing its store base prudently, while setting aside cash to pay a 5% dividend to its shareholders. The company is not only a buy for its dividend, but as I'll write again soon, is a growth company that is substantially undervalued. The payday loan sector isn't terribly generous with dividends. Advance America (AEA) pays 2.9%, QC Holdings (QCCO) pays 6% (although I question its sustainability), and Cash America International (CSH) pays 0.3%. When you consider that Wells Fargo (WFC) only pays 1.3%, you have to ask which company is more generous with its money to shareholders and the answer is clear.
Utility stocks can be very boring, but I like them because every community needs power! And in many parts of the world, utilities are highly regulated industries that often have monopolies in their given operating district. That means consistent and stable cash flow. National Grid (NGG) operates high voltage electricity transmission networks and gas distribution systems in the Great Britain, New York, and New England; gas transmission networks in the Great Britain; electricity distribution networks in New York and New England; and electricity generation facilities in New York. It also owns and operates electricity interconnector between England and France; and a transmission interconnector between England and Canada. The company is not a growth story, but it is a solid and reliable dividend payer. It currently yields a fat 7.6%, and pays out semi-annually. In comparison, the largest utility stocks aren't nearly as generous. American Electric Power (AEP) pays 4.8%, while Duke Energy (DUK) pays 4.9% and Spectra Energy (SE) pays 3.8%.
If you are also looking for a growth story, then check out Kinder Morgan Energy Partners (KMP). Arguably the Grand Poobah of pipeline LP's, the company has paid a steadily increasing dividend for over ten years, and is growing at a 25% clip. It's $4.64 per share dividend translates to a 6.1% yield. Because it deals in energy infrastructure rather than energy itself, it is somewhat insulated from the volatility of the spot energy market.
Disclosure: I am long CSFS.