Carnival Corporation vs. Textainer Group Holdings Limited: Which Stock's Dividend Dominates?

Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking -- dividend payments have made up about 40% of the market's average annual return from 1936 to the present day.

But few of us can invest in every single dividend-paying stock on the market, and even if we could, we're likely to find better gains by being selective. Today, two of the world's largest ocean-going companies -- one dedicated to entertaining guests, the other focused on shipping the world's goods -- will square off in a head-to-head battle to determine which offers a better dividend for your portfolio.

Tale of the tape
Established in 1972, Carnival Corporation (CCL 0.43%) is the world's largest cruise operator. Its fleet of nearly 100 cruise ships boasts a total capacity of approximately 200,000 passengers. Carnival is the only company in the world to be listed as a component of both the S&P 500 index in the United States and the FTSE 100 index in the U.K. Headquartered in Miami, Fla., Carnival has more than 77,000 employees, and it operates a dozen leading cruise brands including Princess Cruise Line, Holland America, and Seabourn, as well as flagship Carnival Cruises in North America and its AIDA, P&O, and Costa Cruises lines operate out of European ports. The company also offers leisure services in 11 hotels or lodges and in 300 motor coaches and 20 glass-domed railcars.

Established in 1979, Textainer Group Holdings Limited (TGH) is the world's largest lessor of intermodal containers, with a fleet of more than 2 million containers boasting total capacity of approximately 3 million 20-foot equivalent units. The company leases containers to more than 400 shipping lines and other lessees, and sells approximately 100,000 old and used containers to more than 1,000 customers across the world every year. Headquartered in Hamilton, Bermuda, Textainer operates through a network of 14 regional and area offices as well as in 400 independent depots around the world.

Source: Morningstar and YCharts. * Free cash flow margin is free cash flow divided by revenue for the trailing 12 months.

Round one: endurance (dividend-paying streak)
According to Dividata, Carnival paid quarterly dividends for more than 20 consecutive years since it first began payments in 1989. That would be an easy win for Carnival over Textainer, whose dividend-paying streak only begins in late 2007, except for the fact that Carnival suspended its dividend in 2009 during the depths of the financial crisis.

Winner: Textainer, 1-0.

Round two: stability (dividend-raising streak)
Carnival's dividend suspension in 2009, and its unchanged payouts since 2011, give the cruise line no streak of dividend increases to speak of. Textainer, on the other hand, has been raising its dividend payouts almost every quarter since 2010 (payouts stayed the same for most of 2013), which allows it to snatch the stability crown as well.

Winner: Textainer, 2-0.

Round three: power (dividend yield)
Some dividends are enticing, but others are merely tokens that barely affect an investor's decision. Have our two companies sustained strong yields over time? Let's take a look:

CCL Dividend Yield (TTM). Source: YCharts.

Winner: Textainer, 3-0.

Round four: strength (recent dividend growth)
A stock's yield can stay high without much effort if its share price doesn't budge, so let's take a look at the growth in payouts over the past five years.

CCL Dividend. Source: YCharts.

Winner: Carnival, 1-3.

Round five: flexibility (free cash flow payout ratio)
A company that pays out too much of its free cash flow in dividends could be at risk of a cutback, particularly if business weakens. We want to see sustainable payouts, so lower is better:

CCL Cash Dividend Payout Ratio (TTM). Source: YCharts.

Winner: Carnival, 2-3.

Bonus round: opportunities and threats
Textainer may have won on the basis of its history, but investors should never base their decisions on past performance alone. Tomorrow might bring a far different business environment, so it's important to also examine each company's potential, whether it happens to be nearly boundless or constrained too tightly for growth.

Carnival opportunities:

• Carnival rolled out a new marketing campaign and travel agent outreach program.
• Carnival added two new ships -- the 3,500-passenger Royal Princess and the 2,200-passenger AIDAstella -- in the past year.
• Carnival will replace three original Seabourn ships with new vessels by 2016.
• Carnival plans to double its presence in China and launch new cruises from Japan.

Textainer opportunities:

• Textainer has been spending substantial capital to expand its fleet of intermodal freight containers.
• Containerized throughput will grow by at least the mid-single digits annually as the U.S. economy recovers.
• Textainer's dividend yield has more than doubled over the past five years.

Carnival threats:

• Carnival expects lower profitability due to inclement weather and higher advertising costs.
• Carnival's reputation was damaged by unfortunate events such as the Costa Concordia sinking and the infamous sewage-spackled "poo cruise."
• Royal Caribbean (NYSE: RCL) outperforms Carnival in terms of traveler ratings and employee satisfaction.

Textainer threats:

• Oversupply concerns for container freight should reduce lease and utilization rates.
• Asian shipping companies have changed industry supply dynamics with relatively cheaper loans.
• Textainer might be hurt by weaker demand and lesser exports from China.

One dividend to rule them all
In this writer's humble opinion, it seems that Carnival has a better shot at long-term outperformance, thanks to its long-term commitment to expand its geographical presence around the world. Carnival's recently benefited from the growth in consumer spending, despite a drop in average room rates. The company's persistence on social media platforms, coupled with the proper marketing and promotional campaigns, should also help it push past its recent PR catastrophes. Textainer's plans to expand its fleet are perhaps even more aggressive than Carnival's, but the company already struggles with excessive supply and underwhelming demand in the container-freight industry. You might disagree, and if so, you're encouraged to share your viewpoint in the comments below. No dividend is completely perfect, but some are bound to produce better results than others. Keep your eyes open -- you never know where you might find the next great dividend stock!