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Flush U.S. corporations have had plenty of proceeds to share with investors. Companies earned $1.8 trillion last year and "returned" $660 million to investors, according to Kiplinger. About two-thirds of that flowed indirectly, after companies propped up the value of their shares via stock buybacks.
The benefits of buybacks are diluted when companies recycle shares by giving them to employees and other holders of stock options. Cash dividends, on the other hand, represent money that can be spent, saved or invested as the shareholder sees fit.
- Video: Sharing the wealth
Using MSN Money's Deluxe Screener and screening parameters created by columnist Harry Domash, we identified six high-dividend-paying stocks that should have significant advantages if the market weakens in the coming months. Even in a bull market, dividend-paying stocks are compelling: Thanks to recent changes in federal law, most dividends are taxed at just 15%.
More than 300 companies have initiated cash disbursements since Congress cut taxes on dividends in 2003, and 2,000 companies raised their dividends last year. Companies in the Standard & Poor's 500 Index ($INX) had an average dividend yield of 1.8% in 2006, Bloomberg News reported.
Here are the stocks sorted out by the screen on June 19.
| Company | Industry | Dividend yield % |
|---|---|---|
Credit services | 9.47 | |
Specialty finance | 9.18 | |
Movie theaters | 5.47 | |
Oil and gas | 5.01 | |
Rental and leasing services | 4.94 | |
Oil and gas refining and marketing | 4.79 |
From here to there
TAL International Group (TAL, news, msgs) has emerged from the screen in recent days. The company leases steel freight containers used to move goods by ship, rail or truck. Marine shipping companies are the primary customers for its fleet of 630,000 containers. TAL has 19 offices in 11 countries.Shares of TAL International climbed 29% last year and returned 32% including dividends, which are paid out quarterly.
The stock popped up 6% on June 6, after the Purchase, N.Y., company said it had hired Citigroup Global Markets as a financial adviser to explore "strategic alternatives," including a possible sale, merger or acquisition.
"We believe that the announcement . . . will enhance value," Jefferies analyst Richard Shane wrote in a June 6 research note. "The announcement may precipitate an M&A cycle in the leasing industry, whereby attractive asset values and predictable cash flows attract interest from strategic and financial buyers." Shane raised his price target by $6 to $35 and reiterated his "buy" rating on the stock.
Calumet Specialty Products Partners (CLMT, news, msgs) was also added to the list recently. The Indiana company is a specialty crude-oil refiner, with three refineries in Louisiana and a products terminal in Illinois.
Specialty products accounted for 75% of Calumet's earnings in 2006, and fuel products generated the rest. Its specialty-products operations convert crude into customized lubricating oils, solvents and waxes sold primarily as raw materials for basic industrial, automotive or consumer goods. The fuel products segment processes crude into unleaded gasoline, diesel fuel and jet fuel.
Calumet recently inked an agreement with the Ute Indian Tribe that tribal leaders hope could ultimately produce the first domestic refinery in more than 30 years.
Tribal lands in the Uinta Basin in northeastern Utah hold a wealth of black-wax crude oil, which comes out of the ground at a consistency similar to petroleum jelly, The Salt Lake Tribune reported.
Black-wax crude usually isn't pumped through pipelines; instead, it's trucked to refineries in insulated tankers. One in eight barrels of oil processed in refineries in the Salt Lake area comes from black-wax wells, a ratio that would improve with a refinery on the reservation.
Regal Entertainment Group (RGC, news, msgs) is the nation's biggest operator of movie theaters. The Knoxville, Tenn., company, which has the United Artists, Regal and Edwards chains, operates more than 6,400 screens in 539 theaters in 39 states and the District of Columbia.
Regal expects to benefit from a multibillion-dollar summer at the box office, led by the blockbuster sequels in the "Shrek" and "Pirates of the Caribbean" franchises, both of which surpassed the $100 million mark in weekend openings.
3-D movies are another trend in Regal's favor, according to Gordon Hodge, an analyst at investment firm Thomas Weisel, who recently upgraded Regal to "overweight" from "market weight." Hodge said 3-D movies could boost cash flow at the company by 15% and add 30 cents per share to Regal's earnings in 2009 and beyond. DreamWorks Animation SKG (DWA, news, msgs) recently said it plans to release all its pictures in 3-D starting in 2009.
Cinema advertising, another growth opportunity, is poised to grow by nearly 67% to $1 billion over the next four years, said Eric Handler, an analyst at Lehman Bros. (LEH, news, msgs).
"Advertisers are worried about people skipping through commercials on TV . . . but with cinema advertising, audience retention rates are three to four times better than television," Handler told The Associated Press. Handler said the emerging long-term-growth trends may alter the way Wall Street views exhibition stocks, which typically are bought in early summer and sold at the end of the season.
Screening for dividend stocks
The screen is based on the following parameters:- A minimum dividend yield of 4.25%, to provide sufficient downside protection in a weak market.
- A positive "latest dividend rate" of 0.25 or better, to weed out companies with one-time payouts or dividends that have been discontinued.
- A closing price of at least $15 a share. Cheaper stocks are likely to have fundamental weaknesses.
- A market capitalization of at least $1 billion, to steer clear of smaller companies likely to be shunned by investors if the market deteriorates.
- A mean analyst rating of "moderate buy" or better.
- Return on equity of 8% or better. Return on equity, or net income divided by shareholder equity, is a common measure of profitability, and companies without profits are more likely to cut or eliminate their dividends.
- Forecasted earnings growth of 8% or better, since earnings growth typically translates to dividend growth.
- Fundamental and technical grades of C or better from MSN Money's StockScouter. The fundamental grade is based on a company's earnings growth, including how it has performed relative to analysts' earnings expectations. The technical grade is based on a charting analysis of the stock's price movements.
Domash cautioned that the dividend yield quoted on MSN Money and other financial sites assumes that the most recently declared dividend will continue unchanged over the next year. However, often that doesn't happen. Many companies adjust their payouts up or down during the year.
Investors, said Domash, do best by picking stocks that increase their payouts. When that happens, the shareholder's dividend yield increases, and the increase often drives the stock higher. Conversely, a dividend cut hurts in two ways: Yield declines, and the dividend cut usually pressures the share price.
As a starting point for additional research, the screen offers investment ideas that could reward investors regardless of which way the market moves. For more details on the screening criteria, click here.
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