Dividend-yielding stocks are a great way to boost your portfolio. Research shows that companies that grant dividends typically outperform their more "stingy" peers, so they have the potential to grow your portfolio with both earnings and regular dividend income. This week, I'm going to take a look at three retail and consumer products companies that offer not only future growth prospects, but strong dividends as well.
Books and coffee, anyone?
Borders (NYSE: BGP) has had its share of ups and downs, most recently delivering a 6.9% sales decline and $0.19-earnings-per-share loss for the quarter. The stock has certainly seen the effects of a rocky retail environment, dropping more than 50% from its 52-week high and nearly 70% in the last three years.
Even with a lackluster economy, folks are still going out for light reading and coffee on Saturday mornings. I pulled a Peter Lynch several weeks ago, and I have to say that my local Borders had a nice crowd of folks and friendly, helpful staff. I usually avoid buying music there because it's so much more expensive than Amazon.com (Nasdaq: AMZN), but Borders was running a trial at my location, offering a 25% discount on all music, prompting me to add not only to my book collection, but my CD stack, too.
Yes, Borders and competitor Barnes & Noble (NYSE: BKS) haven't recently shown an ability to grow sales and profits or serve as more than a fun hangout. Yes, Amazon's Kindle and the like are transforming the industry as people turn away from paper books. However, Borders' dividend yield of 5.9% gives investors a nice stream of income to make it through the tough times. Management is working to improve operations through cost cutting and job reduction. But even if unsuccessful with revitalizing its business, Borders' beaten-down price could lead to a premium buyout offer for investors.
Happy hour at Diageo
Diageo (NYSE: DEO) is one of those companies that makes a lot of great products that you probably didn't know it did, like Guinness beer and Johnnie Walker scotch. This Motley Fool Income Investor selection (Diageo, not the scotch) has not only steadily increased its dividend distributions over the past decade, but the stock price is up 70% in the past five years, delivering a delicious growth combination for investors.
Diageo's record speaks for itself: Its highly profitable product base has averaged a five-year profit margin of 22.4%, versus an industry average of 15.4%. The company's most recent earnings featured 8% annual sales growth and 7% EPS growth triggered by share buybacks. Competitor Constellation Brands (NYSE: STZ) has positioned itself as a wine industry leader, so Diageo could be looking to expand its portfolio with UST's premium wine offerings in the event that Altria (NYSE: MO) sells off the segment from its recent acquisition of UST's smokeless tobacco and wine products. In either case, at a P/E less than 15 times this year's expected earnings, Diageo certainly seems like a steal for a long-term, dividend-reinvesting portfolio.
Sweet treats at the mall?
Looking for an unknown small cap with tons of potential? Rocky Mountain Chocolate Factory (Nasdaq: RMCF) might just hit the spot. Just ask the Motley Fool CAPS community, which gave this up-and-comer its top rating of five stars. If the company's sizable free cash flow generation and debt-free balance sheet aren't impressive enough, consider that its sales and profits have grown at an average annualized rate of 10% and 45%, respectively, over the past five years.
Despite Rocky Mountain Chocolate's small size in terms of market cap, there's nothing tiny about the rewards it pays to investors. With a dividend yield of 4.4% and a 30% return on capital over the past 12 months, shareholders are getting one heck of a deal paying just under 12 times its trailing earnings.
With mall traffic declining, Rocky Mountain Chocolate Factory has seen its same-store sales slipping recently. And economic woes have left management closed-lipped concerning guidance. But Rocky Mountain is positioned to weather the bumpy retail market, and provide shareholders with a sweet dividend in the meantime.
Bottom line
Dividend delivery can be fickle, and maybe these companies will decide to drop their dividends if the sales or profit picture gets rough. For now, though, these three strong dividend-yielding companies are interesting retail and consumer products plays for long-term investment success.
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