In the midst of the August market panic, I wrote about these 10 outstanding dividend stocks:
|Utilities||Southern (NYSE: SO )||4%||14%|
|Mortgage REITs||Annaly Capital||14%||1%|
|Mortgage REITs||Chimera (NYSE: CIM )||15%||6%|
|Multinational||Intel (Nasdaq: INTC )||3%||31%|
|Multinational||Philip Morris (NYSE: PM )||4%||19%|
|Multinational||Coca-Cola (NYSE: KO )||3%||3%|
|Versus S&P 500||4.4%||5.4%|
Source: S&P Capital IQ.
Why these names? The biggest problem facing the U.S. economy is weak consumer spending. Households have high levels of debt they're still trying to pay off, and people are feeling insecure about their jobs or have already been laid off. Under these circumstances, it's easy to see why they're not spending. And when no one's buying goods and services, companies have more capacity to produce than demand for their products, so they have no reason to hire people.
Dividend stocks have been shown to outperform non-dividend-payers, especially in tough times. And there are particular reasons to think these categories of stocks will do well, too: Utilities provide a necessity product and tend to do well in periods of low inflation; mortgage REITs are enjoying strong profit spreads in the current interest-rate environment; luxury-goods makers should do well as the wealthy continue to accumulate a greater and greater proportion of our nation's wealth; and multinationals can support domestic revenue with sales from emerging markets.
How're we doing?
On average, the 10 stocks are outperforming the S&P 500 by five percentage points. So far, so good, but I'm looking for them to outperform over the long term.
Several of our companies recently reported earnings:
- Southern's location is appealing for two reasons: strong population growth in the South, and an accommodating regulatory climate. While the weather's climate wasn't as favorable as the company might have liked, regulators took a kind eye to its Georgia Power subsidiary. Earnings per share were $0.30, versus $0.18 in the same quarter the previous year.
- Coca-Cola's international operations continue to sparkle, on strength in its international sales in emerging economies, whose volumes grew 4%. Interestingly, it successfully introduced some price increases at home, which also helped to drive the company's 5% overall sales growth. Net income was hurt by restructuring charges, but operating income grew a solid 14%.
- Despite only growing shipment volumes by 1.7%, Phillip Morris' operational leverage continues to shine -- revenue was up 9%, earnings per share 19%. Part of that growth resulted from the company's massive share buyback in 2011. Management was incredibly upbeat and forecasted a strong 2012.
- Intel's sales grew a whopping 21% in the fourth quarter. The rise of mobile devices, which aren't Intel's wheelhouse, has been a major concern for investors. But Intel's earnings results, which were boosted by strong PC sales in emerging economies, should remind us Intel's multinational business continues going strong.
- Chimera reports earnings next Wednesday. I'll be watching to see whether its interest-rate spread took a hit just like agency buyers Annaly and American Capital Agency's have, or whether the company's flexible investment approach allowed it to preserve its industry-leading spreads. I still like mortgage REITs, but it was somewhat alarming to see how just how quickly those spreads have been dropping -- even though it's a possibility I'd warned investors about.
For the most part, though, the 10 outstanding dividend stocks are having a solid earnings season, and our overall theses for them are intact.
Foolish bottom line
The current economic environment may be a difficult one for many companies, but these dividend payers have some protection from these challenges and, in some cases, could actually benefit from them.
If you're looking for even more dividend stock ideas, I suggest checking out The Motley Fool's special report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." You can download it today at no cost.