Money Morning Article of the Week
by Diane Alter, Contributing Writer, Money Morning
AOL Inc. (NYSE: AOL) announced Monday it would divvy out $1.1 billion in cash to shareholders, joining the growing group of dividend-paying stocks - although only for brief moment. AOL will dole out a one-time payment of $5.15 a share to holders of record Dec. 5, for a total of $500 million given out in dividends. In addition to the whopping and unexpected dividend news, AOL also reported a $600 million fast-tracked share repurchase agreement with Barclays Plc (NYSE ADR: BCS).
The move comes on the heels of a deal inked in April to sell 800 patents to Microsoft Corp. (Nasdaq: MSFT). At the time, AOL assured its plans were "to return a significant portion of the sale proceeds to shareholders."
The move also follows a push from activist shareholder group Starboard Value LP, which had been lobbying for AOL to unload its patent cache and reward shareholders with a dividend and share repurchase program.
Investors applauded the dividend news, sending shares of AOL up more than 3% last Monday (27 August). The stock has been on a tear, climbing more than 120% year-to-date. While AOL has only planned a one-time dividend, many other companies in 2012 have announced regular payouts.
Dividend-Paying Stocks: Payouts on the Rise
A number of companies are beginning to recognize just how important dividends have become in this era of low-interest savings accounts and certificates of deposits (CDs) that offer paltry yields. In fact, dividends, once a trademark of stodgy blue chip companies, are emerging in full force in the tech sector.
Fisher Communications (Nasdaq: FSCI) made waves Monday after the company's board approved a special dividend of $10 a share payable on Oct. 19. In addition, starting in the fourth quarter of 2012, the company will shell out regular quarterly dividend payments of 15 cents a share.
Cisco Systems Inc. (Nasdaq: CSCO), one of the Internet darlings of the dot.com heyday, started paying a dividend in April 2011 and just two weeks ago nearly doubled its disbursement. The leading provider of IP-based networking announced on Aug. 15 it was raising its dividend from 8 cents a share to 14 cents. Now sporting a 3.2% dividend yield and still sitting on a pile of cash, the payout ratio suggests Cisco can continue to raise its dividend.
Forbes wrote that the move is another sign that tech companies are morphing into the new industrials. In fact, Forbes asked if Cisco, with its rich yield, could now be as reliable as an electricity stock (a group long revered for healthy dividends).
Apple Inc. (Nasdaq: AAPL), enjoying explosive growth with its iPads, iPods, iPhones and iTunes Store, in March initiated a quarterly dividend of $2.65 per share which was paid out in its fourth quarter of fiscal 2012. It also announced a share buyback program to the tune of $10 billion.
Tech isn't the only sector rewarding its shareholders with cash. Tobacco giant Altria Group Inc. (NYSE: MO), valued for its attractive and often increased dividend, hiked its dividend payout 7.3% to 44 cents a share last week, for a yield of 4.8%. Offshore drilling behemoth SeaDrill Ltd. (Nasdaq: SDRL) also just increased its dividend by 2 cents to a rich 84 cents a share. And Brinker International Inc. (NYSE: EAT), the parent company of Chili's, Maggiano's and Macaroni Grill, also just announced it was boosting its dividend payout 25%, and it too will initiate a stock repurchase plan.
Diversify With Dividend Stocks
Before diving in to dividend-paying stocks, investors need to do their research. Investing for yield takes some planning. To be properly diversified, income investors need to look across a broad spectrum. Money Morning Global Investing Strategist Martin Hutchinson said that in addition to the robust payouts from real estate investment trusts (REITs), master limited partnerships (MLPs), financials and shipping, investors should dot their portfolios with tech stocks like the ones listed above. Hutchinson also comprised a list of dividend stocks that have survived every recession since 1962, are expected to survive the next one (which looks increasingly more likely), and have not only maintained but raised their dividends for over half a century. "For investors, that's the true sign of a recession-proof stock," said Hutchinson. "These types of stocks represent the ultimate safe haven for your money. Their share price and even earnings may decline, but their dividends should continue to increase." Hutchinson's dividend stock winners include:
- The Procter and Gamble Co. (NYSE: PG), the household conglomerate that has increased dividends every year since 1954. Its dividend yield is 3.7%.
- Northwest Natural Gas Co. (NYSE: NWN) has raised its dividend every year since 1956. The company, which stores and distributes natural gas in Oregon, Washington and California, boasts a 3.7% dividend yield.
- Emerson Electric Co. (NYSE: EMR) has increased its dividend yearly since 1957. This global engineering services and solutions company rewards shareholders with a 3.5% dividend yield.
- Cincinnati Financial Corp. (Nasdaq: CINF) has boosted its dividend every year since 1961. The property and casualty insurance stock carries a yield of 4.2%.
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