5 Stocks That Are Too Stingy With Their Dividends

Investors want dividend income, and most companies have been more than willing to deliver higher dividends to their shareholders. With nearly 2,900 companies having raised their dividends during 2012, most investors got to share in the strong corporate-earnings results that helped push the stock market so strongly last year.

Yet even as dividends have increased, companies haven't necessarily been as forthcoming about giving you as much in quarterly payouts as you might deserve. With the average payout ratio of dividends to earnings at just 36%, far below its usual level of closer to 50%, there's plenty of room for companies to be freer about sharing their wealth. Today, let's take a look at five companies that are particularly closed-fisted about making dividend payments.

National Oilwell Varco (NYSE: NOV  ) , 8.4% payout ratio
As a major player in the energy-services industry, National Oilwell Varco has done an excellent job of cashing in on the boom in oil and gas. By providing complex equipment like drilling rigs as well as simple supplies like drill pipe and bits and related services, the company has made itself an integral part of the production process for oil and gas producers across the industry.

Yet given how fast the company's profits have grown, National Oilwell Varco's dividends haven't keep up. Consider: Since 2010, Varco has seen its earnings jump 45%, with the company earning $5.86 per share over the past 12 months. Yet the company has only raised its annual dividend by a puny $0.08. Even if growth slows down or even stops in the near future, Varco still has plenty of capacity to pay more than its 0.7% yield.

Southwest Airlines (NYSE: LUV  ) , 5.2% payout ratio
No airline has been more consistently profitable over the years than Southwest. Even though its decision not to charge baggage fees has left Southwest as the odd player out in the industry, with its rivals adding billions to their bottom lines through fees, Southwest has nevertheless used its customer service advantage to keep itself in the black.

Where Southwest hasn't soared is in paying dividends. Even though the company finally doubled its long-standing payout rate to a full $0.01 per share quarterly, that still equates to just a 0.3% yield. Admittedly, the airline industry is one where it's important to have plenty of capital on hand, but Southwest's strong track record suggests that it should be able to afford handing back more than just peanuts to shareholders.

CF Industries (NYSE: CF  ) , 5.6% payout ratio
CF Industries has found itself in the right place at the right time, with its lucrative fertilizer business having soared in the wake of rising food prices and high demand from farmers seeking to improve yields. With holdings in both nitrogen-based and phosphate fertilizers, CF hasn't suffered from a lack of income.

In that light, CF's dividend yield of just 0.8% doesn't make much sense. By contrast, MLP subsidiary Terra Nitrogen pays a 6.6% yield, much of which flows back into CF's coffers. With the company not having made a move on its payout since late 2011, it's high time for CF to give shareholders another boost.

Halliburton (NYSE: HAL  ) , 12.6% payout ratio
Among these companies, Halliburton can be excused to a certain extent for failing to raise its dividend substantially. Ever since the Gulf oil spill, Halliburton has had to worry about liability, and some of those affected argued at the time that Halliburton and the other companies involved in the spill should suspend dividends entirely to prevent them from rewarding investors at potential claimants' expense.

Yet even with a 39% dividend increase announced last month, Halliburton's yield will only be 1.2%. Given the company's huge success, especially from its highly lucrative offshore drilling segment, you should expect to see additional bigger dividend increases from the company in the not-too-distant future.

Citigroup (NYSE: C  ) , 1.9% payout ratio
To be fair, Citigroup hasn't had control of its dividend destiny for quite a while. Under the oversight of the Fed, Citigroup has been locked at $0.01 per share in quarterly dividends ever since the financial crisis, even as its earnings have rebounded exponentially.

Yet Citigroup put the stiff-arm on dividend investors, choosing not to seek permission for a payout increase despite its vast improvement. It's easy to understand why new CEO Michael Corbat wants to be conservative in his first exchanges with the Fed, but long-suffering investors can't be happy with the move.

Demand more dividends
Shareholders need to be vocal about the need for companies to share their wealth. Otherwise, the likelihood that corporate leaders will squander extra cash on ill-advised alternatives could end up costing you money. 

Despite its dividend stinginess, National Oilwell Varco is perhaps the safest investment in the energy sector because of its industry-dominating market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs and updating aging fleets of offshore rigs. To help determine if it could be a good fit for your portfolio, you're invited to check out The Motley Fool's premium research report, featuring in-depth analysis on whether National Oilwell Varco is a buy today. For instant access to this valuable investor's resource, simply click here now to claim your copy.


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  • Report this Comment On March 19, 2013, at 12:47 PM, GETRICHSLOW2 wrote:

    I agree on these stocks but particularly about CF. It has an incredible balance sheet but I would like to see the div. more around 3% before investing. The nitrogen business is not a huge growth industry nor are there big innovations coming down the pike so it is time to start giving up some of the cash.

  • Report this Comment On March 19, 2013, at 9:15 PM, NewAlchemist wrote:

    Cyclical companies should have lower payout ratios than non cyclical companies. Coca-Cola is going to do well in a strong economy or a poor economy and can return a higher percentage of profits to shareholders in the form of dividends.

    Oil drilling(commodities), Flying (tourism), and Banking go down a lot in poor economies. It makes sense that they will have a lower payout ratio than a tobacco company or an inelastic health care company.

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