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  • Women-Led Companies, Including Dividend Yielders, Outperform Male-Dominated Peers 0 comments
    Dec 4, 2012 7:10 PM | about stocks: ADM, CPB, DD, FTR, GD, HPQ, IBM, LMT, PEP, XRX

    The connection between gender and corporate profitability does not appear to be so obvious, but empirical research shows that higher participation of women in corporate management is good for the company's bottom line. While the share of women chief executives at the helm of the world's 1000 largest companies remains low at 4% and the percentage of women as executive officers hovers around 14.6%, companies managed by women tend to outperform their peers based on several profitability metrics. Moreover, among the most prominent corporations run by women, several pay attractive dividend yields.

    Evidence from empirical studies of the positive effect from women's participation in executive decision-making on corporate bottom lines is plentiful. According to a multi-annual study by Pepperdine University of the performance of about 200 of the Fortune 500 companies (the ones providing gender breakdown of their executives), it was concluded that the "correlation between high-level female executives and business success has been consistent and revealing."

    Two studies from Catalyst, a non-profit organization that seeks to expand women's roles in the workplace, and a business consultancy McKinsey & Co., support this assertion. The two studies have found that Fortune 500 companies with more women on their boards/executive committees show better financial performance than those with no or low number of women executives. According to Catalyst, in terms of returns on equity, Fortune 500 companies with 3 or more women on the boards/executive committees outperform those with the least by 53%. In terms of returns on sales and returns on invested capital, Fortune 500 companies with 3 or more women on the boards/executive committees outperform their peers with the least by 42% and 66%, respectively. McKinsey has found similar results in its study, concluding that companies with the highest percentage of women in executive bodies show the best performance.

    Now, while the share of women in top executive posts has increased over the past several decades, it remains low by all means. The number of female corporate officers in Fortune 500 companies increased from 11.2% in 1998 to a peak of 16.4% in 2005. It has since dropped to about 15.7%. According to Catalyst, at the observed rate of growth, "it would take 40 years for the number of female corporate officers to match the number of male officers." On the other hand, the share of women-held board seats has risen progressively from 9.6% in 1995 to 16.1% in 2011. However, in terms of Chief Executive Officers (CEOs), the share of women in top post remains low at 3.8% of the Fortune 500 companies, or 19 in total.

    Among Fortune 500 companies, several female-led corporate giants are dividend-paying corporations with a long history of strong earnings power and consistent dividend growth. In fact, out of 19 Fortune 500 companies led by women, 14 or 74% pay a dividend. The largest Fortune 500 company led by a woman is Hewlett-Packard (NYSE:HPQ). Managed by Meg Whitman as CEO, HPQ, the tenth on the list of the world's largest Fortune 500 companies, currently does not espouse all the aforementioned qualities of the women-led corporate giants. In fact, the stock, which has fallen precipitously by 53% over the past year, is a value trap, although it boasts a high dividend yield of 4.1%.

    Several other corporate giants led by women are good examples of business excellence. IBM (NYSE:IBM), as the second-largest company managed by a woman, is a model of outperformance. Over the past five years, the company grew its EPS and dividends at average annual rates of 16.6% and 17.1% per year, respectively. The company currently has a dividend yield of 1.8% on a low dividend payout ratio of only 24%. Its return on equity (ROE) is exceptionally high at 74%. In terms of total returns, investment in this stock five years ago would have returned, to date, 14.6% annually. This is better than for any other stock in the Dow Jones Industrial Average. The cash-rich IBM is likely to continue to boost its dividends in the future. It is one of the preferred stocks of legendary investor Warren Buffett.

    PepsiCo (NYSE:PEP), a Dividend Aristocrat boosting dividends for 39 years in a row, is another female-led corporate giant with outstanding performance. With a dividend yield of 3.1%, this company pays out 57% of its earnings in dividends. It has been growing dividends at a rate of 9.3% per year over the past five years. PepsiCo's total ROE is high at 26.2%.

    Other dividend payers on the list of women-led corporations include food and biofuel maker Archer Daniels Midland (NYSE:ADM), chemicals manufacturer DuPont (NYSE:DD), the copier company Xerox (NYSE:XRX), Sempra Energy (SRA) and legendary soup company Campbell Soup (NYSE:CPB). Of these, DuPont has the highest yield at 4.0%, followed by Sempra Energy's 3.5%, whose dividend rose more than 13% per year over the past five years. Campbell Soup, Archer Daniels Midland and Xerox pay dividend yields of 3.2%, 2.6%, and 2.5%, respectively. Campbell Soup boasts a remarkably high ROE of 66.5%. DuPont's ROE is also high at 26%.

    Among the Fortune 500 firms is also a high yielder Frontier Communications (NASDAQ:FTR). The company has an elevated dividend yield due to poor stock performance amid lackluster financial results in recent periods and a weak balance sheet. In fact, the company slashed its dividend by 47% in the first quarter of 2012. Still, it pays a yield of 8.3% on a payout ratio of 51% of free cash flow. The current payout ratio is sustainable, and has declined to 46% of free cash flow in the previous quarter from 70% in the year-ago quarter. The stock is a viable income play.

    Furthermore, as of January 1, 2013, the aerospace and defense sector will be richer by two new women executives taking over the helms of two other Fortune 500 companies: General Dynamics (NYSE:GD) and Lockheed Martin (NYSE:LMT). Both these companies have had remarkable earnings and dividend growth in the past. Despite the fiscal tightening, their earnings outlooks remain solid. General Dynamics, whose dividend increased 12.7% per year over the past five years, currently yields 3.1%. Its competitor Lockheed Martin yields a lush 4.9% dividend, with a 5-year dividend growth averaging 23% per year over the past five years. The new CEO of Lockheed Martin, Marillyn Hewson, faces a challenge of sustaining a skyhigh ROE at 107%.

    Based on the documented studies, an increase in the number of female executives in the corporate bodies should lead to the affected companies' better financial performance in the future. Investors who want to reap benefits from the winning leadership of the few women running the world's largest corporation should invest in the dividend-yielders with a proven record of business success.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: dividend-quick-picks-lists Stocks: ADM, CPB, DD, FTR, GD, HPQ, IBM, LMT, PEP, XRX
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