The gaming industry has become a surprise source of dividends in the last few years as the cash flow from Macau has been used to pay investors rather than plowing money into new resorts. Wynn Resorts (WYNN -0.57%) has been one of the companies that introduced a dividend and currently yields 1.8%.
But the gaming industry can be volatile and when Macau's revenue fell in 2015 Wynn adjusted its payment accordingly. The payment was reduced from $1.50 per quarter to $0.50, which is where it stands today. With the volatility and the potential for future reductions if struggling cash flow calls for it, here are some better dividends for investors.
Staying within the "sin stock" category, Diageo (DEO 0.60%) has both a stable business and strong dividend with a 3.5% yield. Brands like Johnnie Walker, Smirnoff, Captain Morgan, and Guinness are incredibly stable because of both consistent demand and distribution power.
Consolidation in beer and spirits has left a few power players in the industry, which makes it more difficult for smaller brands and distributors to break into the business. As one of the few major players in the business, there's a lot less risk for disruption.
Financial returns from this stability can be seen below. Net income has been rising steadily over the past decade and the dividend payout ratio has been at a reasonable two-thirds of income or less.
Whether economic growth or a recession is ahead, beer and spirits sales won't change dramatically., and that makes Diageo a better dividend today than Wynn Resorts.
Diageo focuses on the spirits side of adult beverages, but Anheuser-Busch InBev (BUD 0.37%) is one of the dominant players on the beer side. If its merger with SABMiller is approved, the company will control 46% of U.S. beer sales and 28% of beer sales globally. That's an incredible market position and would give the company distribution power to nearly every continent in the world.
The power of distribution can't be overstated in the beer industry. Walk into any bar or liquor store in the U.S. and you're likely to see signs for an AB Inbev beer and a sign in the window or on the wall. At bars, major beer companies use their power to keep smaller beer distributors out. They can threaten to pull product if another company gets too many taps or preferential placement. Distribution is a rough business and being in a power position is a strong position to be in.
Dividend payments from AB Inbev have been on the rise as well. You can see below that over the past decade the company's dividend has risen 235% while Wynn's has been in decline. Beer is definitely more stable than gaming right now.
Another company in the "sin stock" category that investors may want to consider is Altria (MO -0.62%), the cigarette and cigar maker. Quietly, the company has been able to increase net income and dividends paid over the past five years, as you can see below.
Cigarettes are an incredibly stable business -- because they're addictive -- and there are relatively small numbers of competitors. But it's also a business some investors choose to avoid for that reason.
What Altria has done in recent years is diversify beyond cigarettes to smokeless products, beer, and wine. That keeps the company in its core market of vice products, but it has provided lower exposure to the decline of smoking and given growth, particularly as smokeless tobacco products have grown. Even if smoking isn't what it once was, earnings growth guidance of 7.5% to 9.5% for the year is solid and shows fruit from the business's diversification.
Depending on what you think about Altria's core business, this may or may not be an investment you will consider. But there's no doubt that it's a great dividend for investors looking for stability in cash flows.