Both income and value investors are very excited when it comes to the companies that consistently pay out dividends for shareholders. However, investors must know the companies can keep paying out to shareholders over time, that dividends are sustainable. One rough way of judging that is the dividend paying history, combined with the cash generation ability. So I searched for companies that kept paying increasing dividends over the last five years, with free cash flow for the trailing twelve months and free cash flow last year positive, and with yields of more than 6.5%. Here are the top four candidates in the arrangement of yields from high to low:
Vector Group (VGR). This company has kept paying dividends for the last 20 years. In 2006, its dividend is at $1.15 per share, and in fiscal year 2010, the dividend topped $1.49, making the annual compounded gain of 5.32%. The current price is $17.64, and the dividend yield stays at around 8.5%. VGR is engaged in manufacture and sales of cigarettes in the U.S. through Liggett Group and Vector Tobacco subsidiaries, and real estate business through New Valley LLC, focusing on acquiring additional operating companies and real estate properties. Its TTM operating and free cash flow are $30 million and $14 million respectively. This business is highly leveraged, with the negative book value. At this market valuation, the P/E is 17.5x, 1.2x sales and 46.3x operating cash flow.
Pitney Bowes (PBI). It has been consistently paying an increasing dividend for the last 10 years. Dated back to 2001, the dividend was $1.16, and at the end of 2010, the dividend has increased up to $1.46, experiencing the annualized gain of 2.33%. Its share price is at $19.16, making the dividend yield of more than 7.6%. PBI is the provider of mail processing equipment and integrated mail solutions, to enable customers to manage and integrate physical and digital communication channels. The company maintains field service organizations to provide servicing for customers' equipment, usually in the form of annual maintenance contracts. In terms of cash flow generation, its operating cash flow is staying at more than $1 billion and free cash flow is $884 billion. PBI is highly leveraged as well, with negative book value, P/E of 10.4x and 3.8x P/CF.
Boardwalk Pipeline Partners LP (BWP). The company started paying a dividend since 2006 and has gone from $1.32 to $2.03 in fiscal year of 2010, enjoying annual growth of nearly 9% for the last five years. At the current price of $27.52 per share, the dividend yield is 7.3%. BWP is the limited partnership. It owns and operates three interstate natural gas pipeline systems, including integrated storage facilities to serve a wide range of customers, including producers, local distribution companies, marketers, interstate and intrastate pipelines, electric power generators and direct industrial users. The company generates consistently increasing operating cash flow. Currently, it generates $455 million TTM operating cash flow and $285 million TTM FCF, on total market capitalization of nearly $5.5 billion.
Omega Healthcare Investors (OHI). The company paid dividends since 2003, which have gone from $0.15 to $1.37, with the annual increase of 31.85%. The current price of BWP is at $21.07, making the dividend yield more than 6.5%. OHI is a self-administered real estate investment trust, investing in income-producing healthcare facilities, principally long-term care facilities located in the U.S. It provides lease or mortgage financing to qualified operators of skilled nursing facilities and assisted living facilities and rehabilitation and acute care facilities. Its current investment portfolio consists of around 400 healthcare facilities in 35 states run by 50 third-party operators. It produces up to $176 million operating cash flow and $154 million free cash flow for the current trailing twelve months. Currently the market is valuing OHI at 55.6x P/E, 2.4x P/B and 12.1x its operating cash flow.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
