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Investing in stocks over the long term has been one of the most effective ways to build wealth. Much of those gains can come from the increases in price over time as companies earn more and grow, but it's even better when companies generate enough cash and profits that they can return some of that cash back to you in the form of a dividend. Investing in these kinds of companies has the added benefit of putting cash in your pocket, something that anyone investing for income wants.
To have an effective stock that pays you, though, a company needs to have both a solid business model and a management team that can steer it through the ups and downs of the market. Three stocks that stand out as solid companies that pay a consistent dividend despite the ups and downs of their respective markets are Helmerich & Payne (HP 0.78%), Emerson Electric (EMR -0.46%), and HCP Inc. (PEAK -0.33%). Here's a quick rundown of the reasons these three are ones you want to add to a portfolio that gets you paid.
A gem in the rough
There aren't a whole lot of companies that look like great investing opportunities in the oil and gas services sector. A lack of drilling demand has led to way too much equipment trying to bid for not much work. To make matters even worse, many of the companies in the sector were saddled with high levels of debt that has made their futures very questionable.
One notable exception in this industry is Helmerich & Payne. Even though the company has been subjected to the same brutal market as the rest of its land rig lessor peers, there have been a few details that have given the company a leg up. One of the first is a top-flight management team that had the foresight to either convert or build its fleet of rigs such that it could handle the complex drilling jobs associated with shale drilling very early in the process. At the same time, it has maintained a very clean balance sheet that hasn't burdened the company with onerous interest payments or debt covenants that have plagued so many others in the industry. These kinds of small details have allowed Helmerich to remain both profitable and free-cash-flow positive, which in turn has made it possible for the company to maintain its streak of 43 consecutive years of dividend increases.
In addition to the confidence that comes with a company maintaining an ever-increasing payout for that long, consider that shares of Helmerich & Payne are still trading at a decent rate that will pay you a yield of 4.6%. The industry may be in the doldrums, but Helmerich & Payne has shown it is much better off than the rest of the players, and will pay you a handsome dividend while you wait for the industry to rebound.
Another top-notch performer in a tepid market
The weak oil and gas industry has had far-reaching influence. It has even had ripple effects on other industries, such as industrial manufacturing. Couple a slowing oil and gas industry with tepid global growth, and you start to get a picture of the market that Emerson Electric is facing today.
What so many investors seem to forget when it comes to a company like Emerson, though, is that it has seen times like these before and has managed through them. One thing that helps Emerson through tough times is its diverse offerings ranging from power motors, climate technologies, and industrial automation equipment, which serve mostly business and industrial customers, to consumer offerings for commercial and residential applications. What is even more impressive is that the company's diversity hasn't drastically impacted its profitability. Over the past decade, the company has maintained high returns on equity, something you definitely want to see from a stable business that pays a handsome dividend.
EMR Return on Equity (TTM) data by YCharts.
At an enterprise-value-to-EBITDA ratio of 9.3, you can't exactly say that shares of Emerson are a screaming bargain, but that is still below the company's historical average multiple. That's a pretty decent price to pay for company with a 3.6% dividend yield that has been raising its payout for 59 years straight.
It's the demographics, stupid!
Real estate investment trusts are a unique investment opportunity in that they are designed to return high amounts of cash to investors. Specifically, they are obligated to pay out at least 90% of their income as dividends in return for a special tax status. One REIT that looks especially compelling is HCP Inc. Not only does this company pay a compelling dividend yield of 5.8%, but it is also at the center of a major demographic change that is about to hit the U.S.
HCP's specialty is owning healthcare-related properties like hospitals, physician's offices, and long-term-care facilities. The reason this is important is because between now and 2050, the elderly population in the U.S. is expected to double thanks to increased life expectancy. That means there is going to be an increased demand for healthcare facilities that should, in turn, lead to higher property value and higher rents for healthcare properties, not to mention the opportunities to add more properties to HCP's portfolio.
A major concern for an industry that is on the precipice of large growth is whether the company can balance growth opportunities with the financial limitations of its balance sheet and its obligation to shareholders. One thing that should give investors confidence is that HCP has managed to raise its dividend every year for 26 straight years and maintains reasonable debt levels for those in the REIT business. This all seems to suggest that HCP will be able to keep paying you to own its stock for years to come.
