By Philip van Doorn, MarketWatch
Dividend-paying stocks that have gotten left behind in the rally now feature higher dividend yields, which may be attractive to investors.
But buyer beware: Many yields are high because some investors fear the stocks. But if you do extra research on specific companies and reach a certain comfort level, you may be looking at some bargains.
Long-time income investors are constantly facing the problem of how to replace income lost when older and higher-yielding bonds and callable preferred stocks are redeemed. And more than eight years into the bull market, while interest rates are still historically low, the problem keeps getting worse.
We have featured the S&P High-Yield Dividend Aristocrats, which are companies included in the S&P 1500 Composite Index that have raised dividends for at least 20 consecutive years. But many have yields that aren’t attractive. We also put together a list of dividend stocks culled with rather stringent criteria for free cash flow and sales growth. This time around, we are taking a far less stringent approach.
A total of 33 companies among the S&P 1500 met these criteria:
• Dividend yields of at least 5%.
• No cuts of regular dividends over the past five years, through Sept. 15.
• A free cash flow yield, for the past 12 months, exceeding the current dividend yield.
A company’s free cash flow is its remaining cash flow after planned capital expenditures. We can calculate a free cash flow yield by dividing the past 12 months’ free cash flow per share (or funds from operations per share, for real estate investment trusts), by the most recent closing share price.
If the free cash flow yield exceeds the dividend yield, a company appears to have “headroom” to raise the dividend, repurchase shares, expand organically or through acquisitions, or make other moves generally considered to be good for shareholders. We used funds from operations (FFO) for the REITs, because this non-GAAP metric is generally used to gauge dividend-paying ability in the REIT industry. FFO adds depreciation and amortization to earnings, and subtracts gains from the sale of real estate.
Here are the 33 stocks, sorted by dividend yield:
|Company||Ticker||Industry||Dividend yield||Free cash flow yield||‘Headroom’||Price change - 2017, through Sept. 15|
|Greenhill & Co. Inc.||/zigman2/quotes/201406268/composite GHL||Investment Banks/ Brokers||12.54%||19.69%||7.15%||-48%|
|CBL Associates Properties Inc.||Real Estate Investment Trusts||12.33%||26.28%||13.95%||-25%|
|Waddell & Reed Financial Inc. Class A||Investment Managers||10.16%||12.59%||2.43%||-7%|
|DineEquity Inc.||/zigman2/quotes/205160666/composite DIN||Restaurants||9.50%||10.28%||0.78%||-47%|
|Government Properties Income Trust||Real Estate Investment Trusts||9.17%||11.83%||2.67%||-2%|
|Whitestone REIT||/zigman2/quotes/200491804/composite WSR||Real Estate Investment Trusts||8.68%||9.90%||1.22%||-9%|
|Pennsylvania Real Estate Investment Trust||/zigman2/quotes/205906945/composite PEI||Real Estate Investment Trusts||7.85%||16.73%||8.88%||-44%|
|Senior Housing Properties Trust||Real Estate Investment Trusts||7.75%||9.19%||1.44%||6%|
|Maiden Holdings Ltd.||/zigman2/quotes/204309347/composite MHLD||Property/ Casualty Insurance||7.74%||78.79%||71.05%||-56%|
|Big 5 Sporting Goods Corp.||/zigman2/quotes/207163477/composite BGFV||Specialty Stores||7.55%||13.47%||5.92%||-54%|
|Seagate Technology PLC||/zigman2/quotes/201824240/composite STX||Computer Peripherals||7.51%||14.87%||7.36%||-12%|
|GameStop Corp. Class A||/zigman2/quotes/203755179/composite GME||Specialty Stores||7.49%||26.11%||18.62%||-20%|
|Franklin Street Properties Corp.||/zigman2/quotes/206856761/composite FSP||Real Estate Investment Trusts||7.39%||10.21%||2.82%||-21%|
|Hospitality Properties Trust||Real Estate Investment Trusts||7.32%||12.56%||5.24%||-10%|
|Medical Properties Trust Inc.||/zigman2/quotes/201233436/composite MPW||Real Estate Investment Trusts||7.28%||9.56%||2.28%||7%|
|Geo Group Inc.||/zigman2/quotes/209855552/composite GEO||Real Estate Investment Trusts||7.07%||7.67%||0.60%||11%|
|Lexington Realty Trust||/zigman2/quotes/201674751/composite LXP||Real Estate Investment Trusts||6.99%||9.79%||2.80%||-7%|
|Ramco-Gershenson Properties Trust||/zigman2/quotes/206639131/composite RPT||Real Estate Investment Trusts||6.51%||9.99%||3.48%||-18%|
|CoreCivic Inc.||/zigman2/quotes/200590180/composite CXW||Real Estate Investment Trusts||6.44%||9.97%||3.53%||7%|
|Buckle Inc.||/zigman2/quotes/207388380/composite BKE||Apparel/ Footwear Retail||6.35%||14.68%||8.33%||-31%|
|Chatham Lodging Trust||/zigman2/quotes/202597269/composite CLDT||Real Estate Investment Trusts||6.29%||10.81%||4.53%||2%|
|Chesapeake Lodging Trust||Real Estate Investment Trusts||6.22%||8.75%||2.53%||-1%|
|LaSalle Hotel Properties||Real Estate Investment Trusts||6.20%||9.40%||3.20%||-5%|
|Hersha Hospitality Trust Class A||/zigman2/quotes/201346460/composite HT||Real Estate Investment Trusts||6.08%||12.55%||6.46%||-14%|
|L Brands Inc.||/zigman2/quotes/202062875/composite LB||Apparel/ Footwear Retail||5.92%||7.27%||1.35%||-38%|
|Kite Realty Group Trust||/zigman2/quotes/204637140/composite KRG||Real Estate Investment Trusts||5.84%||10.00%||4.15%||-12%|
|EPR Properties||/zigman2/quotes/206791795/composite EPR||Real Estate Investment Trusts||5.65%||6.87%||1.22%||1%|
|Tanger Factory Outlet Centers||/zigman2/quotes/204622836/composite SKT||Real Estate Investment Trusts||5.48%||9.60%||4.12%||-30%|
|Oneok Inc.||/zigman2/quotes/205201756/composite OKE||Oil and Gas Pipelines||5.30%||8.37%||3.07%||-2%|
|AT&T Inc.||/zigman2/quotes/203165245/composite T||Telecommunications||5.28%||6.89%||1.61%||-13%|
|Kimco Realty Corp.||/zigman2/quotes/202836571/composite KIM||Real Estate Investment Trusts||5.26%||6.52%||1.27%||-18%|
|Ford Motor Co.||/zigman2/quotes/208911460/composite F||Motor Vehicles||5.16%||23.39%||18.22%||-4%|
|Macerich Co.||/zigman2/quotes/203054096/composite MAC||Real Estate Investment Trusts||5.11%||7.30%||2.19%||-21%|
You can click on the tickers of each company for business profiles, news, financials, ratios, etc.
As you can see from the year-to-date price changes, investors have soured on most of the companies. But do you think all of them will cut their dividends? That hardly seems likely, especially the ones with plenty of free-cash-flow headroom.
Many of the REITs are investors in retail properties. Everyone “just knows” brick-and-motor retail is dying. Or do they? Not all REITs are the same, and not all retail REITs are the same.
When considering any of the stocks (best done with the assistance of your broker or investment adviser), keep in mind your income objective. If you see something potentially attractive, take the time to learn what’s really going on with the company. Has the market overreacted?
When doing research, your first reaction may not be particularly helpful. Additional research and thinking just might change your opinion.