The S&P 500 Index has a stingy return of just 1.3%. But it’s a mix of companies, with stocks not offering return-offsetting stocks that have fairly attractive returns. Here are five of the top dividend-paying companies in this benchmark for investing.
1. Stuck in the middle
Kinder Morgan (NYSE: KMI) is one of the largest middleman companies in North America, helping move oil and natural gas from where it is drilled to where it is ultimately used. Its portfolio of pipelines, storage and processing assets would be virtually impossible to replace. Its business is largely paid, as it is paid based on the use of its system and not the price of the goods passing through it.
The yield is currently 6.7%. To be fair, the dividend was reduced in 2016 after management previously suggested a dividend increase was being considered, which could deter more conservative investors. However, the company has since returned to the path of dividend growth and made sure it can sustain its dividend for the long haul this time around.
2. The best oil record
Sticking to the theme of energy, the next name is US integrated oil giant Chevron (NYSE: CVX). Commodity prices determine the results here, which can make earnings quite volatile. However, Chevron has the strongest balance sheet of its peer group (the debt-to-equity ratio is a modest 0.33 times), providing a solid financial foundation. And despite the often significant ups and downs in oil prices, he has had an incredible 34 years of annual dividend hikes, making him a dividend aristocrat. Management clearly knows how to deal with a volatile commodities market.
Right now, the return is historically generous 5.5%.
3. Far from being dead
Owner of the shopping center Simon Real Estate Group (NYSE: SPG) and its 4.5% dividend yield could be a tough sell for some investors. That’s right, given that this real estate investment trust ended up cutting its dividend in 2020 as it faced the impact of the coronavirus pandemic. However, the over 200 properties Simon owns are generally well located and should likely take advantage of the mall’s space issues. This is because as weaker malls close, the remaining malls become more attractive to shoppers and retailers in a reverse networking effect.
But what’s really interesting here is that Simon increased his profit forecast for the year 2021 in each of the first and second quarters. He also increased his dividend each quarter. While some investors may fear the mall is dead, Simon appears to be rebounding strongly after a difficult year and proving that his death has been greatly exaggerated. More aggressive investors might find this high-yielding contrarian game appealing.
4. Hidden success
Food Manufacturer Kellogg (NYSE: K) is a name you probably know because of its iconic list of cereal brands. However, management has reshuffled the company’s portfolio in recent years. Cereals now make up about a third of the business, with snacks accounting for about 50% and frozen foods the rest. Snacks are a faster growing segment of the industry, so this is a pretty solid decision that follows customer demand.
Kellogg has also built a position in the emerging African market (where noodles are a key product), which should help support long-term growth.
The problem is, the big repositioning was completed just in time for the coronavirus to complicate progress for this food business. But if you look at a two-year period, which balances the unusual surge in demand in 2020, the annualized organic sales growth is 5%. In other words, it looks like Kellogg is moving in the right direction. Meanwhile, the yield is at a historically high level of around 3.6%.
5. Ready for dividend growth
Utility Energy of Domination (NYSE: D) is another name that recently cut its dividend, but that’s because it sold a large chunk of its business in a conservative reset. It was the culmination of a multi-year effort to simplify its operations and, just as important, to reduce risk. Today, it’s basically a boring old utility.
However, thanks to the reset dividend, he is now able to start increasing the quarterly disbursement by a projection of 6% per annum for the foreseeable future. That’s a staggering number for a utility, and it’s expected to be driven by spending approved by regulators that allows for steady price hikes. And while you can probably find a utility with a higher yield than Dominion’s 3.4%, the combination of yield and dividend growth is actually pretty compelling.
Good returns exist if you look hard enough
The high level of the broader market left the S&P 500 performance at a painfully low level. But that doesn’t mean you can’t find great returns from good companies. You just have to dig a little deeper to spot them. The five names here have relatively generous returns and solid track records. Take a deep look at them and you may find that one or more will end up in your wallet today.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.