Drip Portfolio Five Stocks That Pay

With money market and bond yields dragging rock bottom, stocks might prove to be the better-yielding instrument. While that means taking on more risks for the potential of more rewards, Rick Munarriz likes those odds right now. He's looking at five stocks, all yielding more than the 10-year Treasury note.

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By Rick Aristotle Munarriz (TMF Edible)
October 17, 2002

Is it just me, or do you find that you're weighing more than your money market fund yield in basis points?

No offense, Slim, but it seems as if, with every passing week, bond funds are eating with Jared at Subway. If I could be any more cynical, I'd argue that the weekly yield listings should include the payout available if you propped your savings under your mattress.

The same can't be said for the stock market. Falling prices have pumped up the yields of companies that are holding up well enough to maintain -- or even hike -- their dividends. Like passing ships in the Sea of Liquidity, the meaty payouts no longer belong to junk bonds. They belong to junked stocks.

But is it safe for an income investor to substitute high-yielding equities for low-paying fixed-income instruments? What are you? New around here? The stock market is a risky place, and the promise of fatter quarterly dividends from roughed-up stocks is often made with fingers crossed.

But if you have the risk tolerance to trade in your fixed-income portfolio for one with a variable income, your timing couldn't be much better. Just trolling through stock screens, I was able to come up with a ton of stocks currently paying out more than the 3.8% yield produced by the 10-year Treasury note. While you have some flunkies dipping in the high-yield pool, I found five that have me fumbling through my pockets for spare change and sunscreen.

ALLETE (NYSE: ALE) -- If utilities are broth, this is a hearty stew. As a diversified conglomerate that includes car auctions and Florida real estate with its energy business, ALLETE's 5.3% yield may seem like pure utility, but there's a bit of kick in the engine. The stock took a hit last month, when the company lowered its profit guidance. ALLETE now plans to earn between $1.80 and $1.90 a share this year. Don't worry, that's more than enough to cover the $1.10 a share in dividends the company will pay out this year.

The energy business is to blame for the earnings shortfall. That's significant because the company still expects 30% in bottom-line growth this year from its automotive services business, the country's second-largest wholesale vehicle auction network. So while a drop in power prices has the industry scrambling, ALLETE's holding up nicely. 

Flanigan's Enterprises (AMEX: BDL) -- If you've never tried some of Flanigan's signature "meat falls off the bone" barbecued ribs, you're not alone. The company is strictly a South Florida institution. Hit me up next time you're in town, and we'll check it out. As a family operation in a publicly traded wrapper, you can bank on slow yet calculated expansion in its restaurants and liquor store business. It has recorded higher sales and pre-tax profits every passing year, like clockwork.

The 5% yield comes with an important caveat. This is not a quarterly payout, even if it's a quarter. The company has issued a one-time dividend at the start of every fiscal year over the past four years, and the $0.25 that investors received back in January is not a lock to continue. However, since the dividend has risen every year, it's been as consistent as this very small and rather illiquid company's growth. 

ICN Pharmaceuticals (NYSE: ICN) -- The health-care sector has seen better days, and ICN has called in sick a lot lately. While the stock got slammed this summer, when it cut its second-quarter guidance in half, the company is confident enough that it hiked its quarterly dividend earlier this month.

The $0.0775 quarterly dividend implies a 4.3% yield. But this is not a diamond in the rough. To many, ICN's cubic zirconia. Before this summer's downdraft, Wall Street expected the company to earn $1.86 a share this year and $2.42 a share come 2003. Those targets have been slashed to $0.89 and $1.03, respectively. If those figures escape future markdowns, not only is the decent payout sustainable, but ICN will eventually be seen as a value stock, fetching just seven times year-ahead income estimates.

Briggs & Stratton (NYSE: BGG) -- The grass is always greener at Briggs & Stratton, but that might be because the lion's share of the company's business comes from the sale of lawn and garden equipment. It may have spent the last two years on a turnaround, but that hasn't stopped it from hiking its quarterly dividend every year.

This is a seasonal business, so the fact that the company trounced its typically strong June-quarter profit estimates is encouraging. The only two major analysts covering the company expect the bottom line to soar by just over 30%, for a $3.10-a-share showing. With its 3.8% yield, unlike the 10-year note the company shared its payout with earlier this week, Briggs & Stratton is poised continue its history of dividend hikes, rewarding shareholders for their, well, grassroots investing.

Ennis Business Forms (NYSE: EBF) -- Selling business forms at a time when companies are in a rut is like shooting fish in a barrel -- when the barrel is fish-less. Yes, buying into Ennis is less about today's malaise and more about the eventual upswing. That will happen, but are you patient enough to accept that you don't know when?

With a tidy balance sheet and a healthy 5% yield, Ennis looks good on paper. Then you realize that revenue has fallen over each of the past five quarters. But that comes with the territory of selling business forms and pitching related corporate services. Waiting for business to pick up -- literally and figuratively -- is imperative. In the meantime, enjoy the payouts.

Rick Aristotle Munarriz yields at yield signs. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

Drip Portfolio

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  Ticker Company Price
 Change
 Daily Price
 % Change
 Price 
  MEL MELLON FINL CORP 1.49 5.95% 26.54 
  PEP PEPSICO, INC. 0.19 0.44% 43.74 
  JNJ JOHNSON & JOHNSON 1.30 2.21% 60.20 
  INTC INTEL CORPORATION 0.69 5.10% 14.23 
  PAYX PAYCHEX INC 1.22 4.51% 28.25 
      
  Trade Date # Shares Ticker Cost/Share Price  Total % Ret  
 10/07/98 46.6655 MEL 35.00 26.54  -23.46%
 07/28/00 15.2182 PEP 45.57 43.74  -1.90%
 11/14/97 39.403 JNJ 42.32 60.20  43.54%
 09/08/97 59.9456 INTC 25.10 14.23  -42.73%
 02/05/02 10.275 PAYX 34.06 28.25  -17.07%
      
  Trade Date # Shares Ticker Total Cost Current Value  Total Gain  
 10/07/98 46.6655 MEL 1,633.06 1,238.51  -394.56 
 07/28/00 15.2182 PEP 693.53 665.65  -27.90 
 11/14/97 39.403 JNJ 1,667.59 2,372.06  704.49 
 09/08/97 59.9456 INTC 1,504.68 853.02  -651.67 
 02/05/02 10.275 PAYX 350.02 290.27  -59.75 
Cash:483.04 
Total:5,902.55 


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