Below are 3 ideas for boosting the dividend yield on your portfolio without taking excessive risk. They are diversified across size of company and sector, though they are skewed more toward the U.S. economy than internationally:
|Company||Ticker||P/E||P/B||Yield||Payout Ratio||Market Cap|
Note: ConocoPhillips yields 3.7% now, but should yield a combined 4.3% across its two companies post-spin off in 2012.
Cinemark Holdings (CNK) - 4.2% yield, 64% payout ratio
The movies are a relatively stable business, and Cinemark operates theaters mainly in the U.S. with some limited exposure to Central and South America. Cinemark makes money through ticket sales, advertising and concessions, with a focus on concessions, where it has recently launched healthier lite bites and 3D movies being medium-term drivers of the stock. A lot will depend on its ability to continue to monetize concessions, and the relative attractiveness of movies compared with last year, but with the "Avengers," "Men In Black 3" and "The Dark Knight Rises," coming it could be a good year. Cinemark is a mid-cap company with market cap of just over $2B.
Cinemark has had a good first nine months of its fiscal year with revenue up almost 8% and net income growing 4%. Growth accelerated to double digits in the last quarter, helped by strong concessions growth. Full-year results are expected in late February.
Risks: Cinemark's payout ratio is on the high side, and cinema attendence is somewhat counter-cyclical, so Cinemark will not benefit from continued economic improvement as much as other stocks. Madison Dearbon, a venture capital firm that did have a significant stake in Cinemark, sold it over the past year.
Medallion Financial Corp (TAXI) - 6.8% yield, 73% payout ratio
Medallion operates in an attractive niche, lending money to finance taxi licenses in the U.S. and this specialization may offer an effective 'moat' to the business. Taxi licenses are a scarce commodity; their value tends to increase over time and the resulting lending is relatively low risk. For example the price of a taxi medallion in New York hit $1M last October, up from $10 when they were first issued in 1937. Medallion also engages in other lending for boats, RVs etc. It is a small company with a market cap of just under $200M.
Risks: Medallion is a small-capitalization stock, which creates risk of volatility. Also, although taxi medallion lending is a great business it has diversified into other, arguably less attractive areas of banking, so medallion lending represents about two-thirds of its assets.The payout ratio is high, but more a result of the corporate structure where it is legally required to pay out a high proportion of earnings.
ConocoPhillips (COP) - 3.7% yield (but estimated 4.3% post spin-off) and 34% payout ratio Conoco Phillips is a large energy company. In addition to the healthy yield and payout, an upcoming catalyst for this stock is the plan to split the company in two later (Q2 2012) - into its exploration and production and downstream components (Conoco Phillips and Phillips 66 respectively). If you are a buy and hold investor, the split may be more complexity than you want, but spin-outs are on average associated with market outperformance, and the payout will actually serve to increase the dividend because the payout at Conoco Phillips will remain the same and Phillips 66 will pay an additional dividend, causing the total yield across both pieces of the spin-off to be 4.3% at current prices. Of course the payout ratio would increase accordingly too, rising to roughly 43%.
Risks: Though stock splits lead to excess returns, on average, it can take time as the market takes time to understand the spin-off. ConocoPhillips is also at its heart a commodity play and so subject to changes in the oil price over time.
If you are a dividend investor, CNK, TAXI and COP all offer attractive yields that are not so high as to be unsustainable. COP is likely the lowest risk given the high payout and short-term catalyst in terms of the upcoming spin-off. CNK is smaller, but enjoying good momentum with a reliable, if relatively unexciting, business model. TAXI is likely the riskiest of the three by virtue of its small size, and its diversification beyond pure taxi medallion lending is a mild negative, but it occupies an attractive niche market.
Financial data source (p/e ratios etc.): Google Finance