Dividend stocks are useful for more than just income investors. This paper discusses how over longer timespans, dividend stocks out-perform non-dividend paying stocks. That makes perfect sense, since corporations love to spend money on outlandish corporate compensation, one or two extra corporate jets, and share buybacks that just happen to occur when the stock is trading at all-time highs. Dividends return some of earnings to shareholders, to help reduce the amount of unproductive spending and keep companies accountable.
Below, we’ll examine four dividend stocks with yields over 4% and market caps over $2 billion that can add a little to your portfolio.
PBI Total Return Price data by YCharts
A Company to Avoid
Pitney Bowes Inc. (NYSE:PBI) offers a strong yield, but this is the price the company is forced to pay to maintain investors’ interest in a declining industry.
Investing in Pitney Bowes is a high-roller version of hot potato. The company operates in the declining mail business. The advent of a little piece of technology called the Internet has forced a major decline of mail volumes. Customer communications management services and enterprise mail services are the company’s two biggest business segments.
Over the past 12 months, insiders have only purchased $60,000 worth of shares, which is hardly a strong vote of confidence for a company with a $2.4 billion market cap. Revenue has shrunk -3.88% over the past five years, and the company has a high total debt-to-equity ratio of 29.69. Its $3.3 billion of long term debt and $2.7 billion of current liabilities are latent risks.
Declining revenue and a super-high yield rate are not the signs of a dependable company — just a declining firm for traders to play with.
Firms to Invest in
ConocoPhillips (NYSE:COP) is a major oil company with a yield of 4.3%. Unlike Pitney Bowes, it has a total debt to equity ratio of only 0.45. Another sign of confidence is that its payout ratio is only 33%, and its ROI is 15.8%.
The company has recently undergone some major changes. In 2012, they spun off their midstream and downstream operations into a new firm, Phillips 66. In addition to selling off their downstream assets, ConocoPhillips has decided to sell a number of assets in politically risky areas like Nigeria and Algeria. They have also discussed selling off some portion of their Canadian assets. If only foreign bidders come to the table, then Canada’s political system may throw up roadblocks, as occurred with CNOOC and the Nexen sale.
ConocoPhillips is raising all of this cash to ensure that it hasa large enough capital investment budget to replace reserves and maintain production levels. It’s a large multinational with decades of experience, and its recent reorganization shows that it’s willing to do what is necessary to maintain production levels and keep the company focused.
CenturyLink, Inc. (NYSE:CTL) is a rural telecommunication company that is learning to deal with the switch to cell phones. It has tried to make the best of this situation, engaging in a number of acquisitions over the past couple years. It continues to grow its fiber network and expand its number of datacenters worldwide. The loss of revenue from its legacy operations is expected to continue for the time being, though revenue is expected to stabilize in 2014.