Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Still Too Stingy by Andrew Bary
Summary: Barron's says many companies "are missing the seismic shift in retail demand for yield" by not paying dividends, or paying less than they should. S&P 500 companies are expected to pay out just 30% of their earnings in dividends this year, a record low; in the 1980s the number was 55%. Many corporations are convinced share buybacks lift share prices more than dividends do: In 2006 buybacks hit a record $494 billion while dividends totalled only $233 billion. Share buybacks are also easier to halt if earnings go south. And the executives who make the decisions are often deeply invested in company shares, so it's little wonder they tend to favor repurchases over dividends. But many analysts are calling for companies to give more money back to shareholders. They argue buybacks reward those who want to leave (sell) more than those staying. And if the red hot market tops and share prices retreat, repurchases won't look so smart anymore, as Gannett (NYSE:GCI), Dell (NASDAQ:DELL) and Amgen (NASDAQ:AMGN) learned the hard way. Stocks investors can turn to for yield:
- Windstream Corp. (NASDAQ:WIN), Citizens Communications (CZN) are the only S&P 500 companies that yield above 6%. Washington Mutual Inc. (NYSE:WM) at 5.1% is the only other company over 5%.
- Banks tend to be generous: U.S. Bancorp (NYSE:USB), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) yield over 4%.
- Coca-Cola (NYSE:KO), PepsiCo (NYSE:PEP), Proctor & Gamble (NYSE:PG), Altria (NYSE:MO) and Bank of America have raised dividends for 25 years straight.
- Pfizer (NYSE:PFE) leads the drug sector at 4.2%.
- Foreign oil stocks like BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A) at 4% out-do U.S. counterparts like ExxonMobil Corp. (NYSE:XOM) which yields just 1.7%. Other foreign stocks also fare better: Vodafone (NASDAQ:VOD), Deutsche Telekom (DT), HSBC (HBC) and British American Tobacco (NYSEMKT:BTI) all range from 4-5%.
- Other notables: Reynolds American (NYSE:RAI) and Consolidated Edison (NYSE:ED) -- 4.5%. Verizon (NYSE:VZ) -- 3.8%. New York Times (NYSE:NYT) -- 3.7%.
- Stingy stocks: American International Group (NYSE:AIG) -- 0.9%, Goldman Sachs (NYSE:GS) -- 0.6%, Franklin Resources (NYSE:BEN) -- 0.4%, UnitedHealth Group (NYSE:UNH) -- 0.1%, Amgen (AMGN), Cisco Systems (NASDAQ:CSCO), Dell (DELL), Oracle (NASDAQ:ORCL), Viacom (NYSE:VIA) and Berkshire Hathaway (NYSE:BRK.A) -- 0%.