The past year was horrible for dividend investing. Many investors these days are indifferent to dividends. They want a story, fast growth, momentum and a whiff of technology. No one buys Netflix
Beginning in 1998, I’ve written 20 columns recommending selected stocks that I think have dividend appeal. The one I wrote a year ago had the worst results, by far.
My Dividend Appeal picks dropped 42.3%, shattering the previous low, a loss of 15.4% in 2015-2016. All five of my picks fell, led by Carnival (CCL). The cruise ship operator fell 62% after Covid-19 turned some cruises into nightmares and forced the cancellation of future cruises.
The big loss in 2019-2020 leaves me just ahead of the Standard & Poor’s 500 Index in this series of columns. In 20 outings, my Divided Appeal stocks average a 12-month return of 10.1%, versus 9.8% for the S&P 500.
Bear in mind that my column results are hypothetical: They don’t reflect actual trades, trading costs or taxes. These results shouldn’t be confused with the performance of portfolios I manage for clients. Also, past performance doesn’t predict future results.
Dividends Matter
I won’t let one year’s disaster knock me off this horse. Over the decades, dividends have directly or indirectly accounted for about 40% of the stock market’s return. The dividends themselves account for about a quarter of the return, and the reinvestment of dividends accounts for 15% or so.
Most managements talk bullish, but rising dividends are a sincerity barometer. When a board of directors lifts the dividend, they probably believe that earnings progress is sustainable.
Here is a new batch of stocks that I believe have dividend appeal. Each has a dividend yield (stock price divided by the annual amount of the dividend) of 2.5% or better, and a dividend growth rate over the past five years of 7% per year or more.
Tyson Foods
Tyson is a dividend star. For years, it paid 16 cents a share in dividends. It started to increase the dividend in 2013, and has increased it every year since, to a current $1.68 per share. Its dividend yield is 2.9%.
Intel
Semiconductors are used in computers, smart phones, cars and even appliances. While most technology companies pay skimpy dividends, Intel offers a 2.5% dividend yield. And since it pays out only 24% of profits in dividends, I believe there is room for further increases.
Franklin Resources
I believe the trend toward index, or passive, investing has been overdone. (I may be biased, since I am an active manager myself.) With a dividend yield of 4.8%, I think Franklin Resources is a good buy now.
Selling below book value (corporate net worth per share) is Westrock
Westrock shares yield 3.5%. The dividend is $1.59 a share, up from 41 cents a share in fiscal 2013.
Apogee Enterprises (APOG) makes glass for skyscrapers. I don’t know that the stock is especially timely now, but I’ve always liked it. And it has dividend appeal, with a yield of 2.9% and a five-year dividend growth rate of close to 12%.
This month, Apogee announced it will resume a program of buying back its own stock. That program had been suspended in the spring when the pandemic hit.
Disclosure: Some of my dividend-oriented clients own Apogee Enterprises, Franklin Resources, Intel and Tyson Foods. I don’t own them personally.
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John Dorfman is chairman of Dorfman Value Investments in Boston. His firm of clients may own or trade securities discussed in this column. He can be reached at jdorfman@dorfmanvalue.com.