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Dividend stocks can be a valuable addition to your portfolio. By finding companies that return capital to investors on a regular basis, and reinvesting those dividends, you can generate compound returns that may outperform the broader market by a wide margin.
CTAS Total Return Price data by YCharts
If that investment method sounds appealing to you, here are three stocks that you should either have on your radar or add to your portfolio today.
Cintas: Simple business, high returns
Sometimes when you look at a business model that is simple, yet generates strong returns, you have to wonder why more companies don't try to jump in on the action. Cintas' (CTAS -0.17%) uniform and floor mat rental business is definitely one of those. While the company has some ancillary businesses, renting out and maintaining uniforms and floor mats generates the bulk of its revenue and profits. The rental and service aspect of that business model is key, because it establishes steady revenue streams, rather than the lumpiness that can come with straight sales.
What is even more impressive is that the company has been able to turn this rather simple concept into a steady, high-return business. Cintas has generated annual returns on equity in the high teens for more than 20 years, with the exception of the 2008-2010 recession -- and even then, its worst return was 7.5%. Those high rates of return have allowed the company to steadily raise its dividend for 33 years, and reduce its overall share count by close to a third over the past 10 years. (Note: That dip near the end of the dividend payment chart is because the company paid an additional special dividend in 2014 that had no bearing on its regular dividend).
CTAS Return on Equity (TTM) data by YCharts
Cintas' current 1% dividend yield isn't anything that will turn your head, but that is in part because the company's stock is a little expensive now. So today may not be the most opportune time to buy this stock, but it's certainly worth putting on your radar for the future.
Boeing: Backed up by a strong backlog
For industrial manufacturers, there are always going to be times of feast and times of famine. These inevitable ups and downs can turn off some investors, but there are companies that do a better job of wading through the down times than others. One way is by building up a large order backlog that can keep your operations busy whether times are good or bad. Boeing (BA -0.24%), with $480 billion worth of orders for commercial planes alone, can assure investors that it won't be suffering from a lack of work any time soon.
That steady stream of orders on older and newer plane models gives the company some wiggle room when figuring out the kinks related to bringing a new aircraft to market. Sales of those new planes have led to some lumpy returns over the years, but the big takeaway here is that the company has mostly been able to maintain returns on capital employed in the the double digits for the past 20 years, which has allowed the company to increase dividends and reduce share count.
BA Average Diluted Shares Outstanding (Quarterly) data by YCharts
Boeing's share price doesn't necessarily look cheap or expensive today. Its current enterprise value to EBITDA ratio of 9.4 times is pretty much in line with where the company has traded over the past decade. With a better than 3% dividend yield, though, they do have a certain amount of appeal.
ExxonMobil: Still selling at a discount
In recent months, moderately recovering oil prices sent shares of oil and gas companies much higher compared to the lows that we saw at the beginning of the year. ExxonMobil (XOM 1.15%), a company that doesn't typically see huge gains over short periods, is up 20%. Some investors may feel that means they missed the boat on ExxonMobil. Looking a little deeper, though, it appears there could still be room to run for this energy industry stalwart.
The reason that it makes a compelling dividend investment in the first place is that it's probably the best in the business when it comes to allocating capital efficiently and generating returns through the ups and downs of the energy market. Even amid the recent drubbing of the energy market, ExxonMobil generated a return on equity in the high single digits, and that's the first time in over 25 years that it has fallen below 10%. With oil prices slowly creeping back up, you can pretty safely assume that ExxonMobil will see better returns ahead.
Even though its stock has recovered a bit in recent months, it's still pretty cheap compared to its historical valuations. On a price to tangible book basis, Exxon's stock is trading at levels we haven't seen in more than 20 years. Plus, at about 3%, its dividend yield is in the highest neighborhood it has been in the 2000s.
XOM Dividend Yield (TTM) data by YCharts
Considering ExxonMobil's track record for generating returns over the long term, the stock looks somewhat attractively priced today.
