Dividends are a great way for investors to see a steady stream of returns on their investments, and many companies strive to attract long-term investors with reliable distributions over time. Sharing profits with shareholders is an indication of management's belief in a company's sustainability and gives investors the chance to affirm their own confidence in its future by buying more shares through a dividend reinvestment plan, which gives them the chance to grow their investment with the company.
Despite the S&P 500's 10% gains year to date, especially the boost it got following the presidential election, not every top dividend-paying stock rose with the market. In fact, after screening stocks with a capitalization of at least $1 billion that have a dividend yielding more than 3%, but so far in 2016 have lost at least 10% of their value, I found more than a handful of companies that fit the bill.
Of course, not all of them are worthy investments, as some exhibit some real problems, at least in the short term. Ferrellgas Partners, for example, is an otherwise secure propane gas producer that has run into significant headwinds and has been forced to slash its payout to conserve cash. As it's uncertain how or when it will regain its footing, investors would do well to pass on the stock until a measure of certainty returns.
But three stocks did stand out as top dividend payers that appear to be selling at discounts as we head into winter. They might just warm up your portfolio.
Shares of global beer distributor Anheuser-Busch InBev (NYSE:BUD) have tumbled 15% since the company reported third-quarter earnings at the end of October, pushing its stock some 15% below where it started the year, as North American volume production fell 2.4% in the period. Production globally is down 1.4% over the first nine months of 2016, to 340.8 million hectoliters (about 9 billion gallons, or about 290 million barrels), and was off 1.1% in North America, suggesting the decline may be accelerating.
Yet following its merger with SABMiller, A-B InBev now has a 45% share of the U.S. beer market and commands 28% of the global market. The brewer has also acquired a dozen craft breweries over the past few years, has its own craft-y Shock Top brand, and now has a foothold in the African market, where it didn't have one before.
While its U.S. troubles are indicative of a broader malaise in the beer industry, with the largest brands seeing tough growth prospects but the smallest craft brewers still thriving (hence AB's purchase of all those craft breweries), the company now has a leading position in all the markets that hold the most growth potential.
Over the next five years, Anheuser-Busch InBev's earnings are expected to grow 8% annually, while the stock's annual dividend of $3.50 per share currently yields 3.41%. Income investors just might want to fill their mugs with this brewer.
Analysts have been wrong all year long about just how willing buyers are to buy guns. Particularly since the election last month, demand has sent shares of gunmakers Sturm, Ruger (NYSE:RGR) and Smith & Wesson Holding (NASDAQ:AOBC) plummeting by double-digit rates. Ruger is down 20% over the past month while its rival has lost a quarter of its value, and both are underwater year to date, though the former has fallen by 10% and the latter just 3%.
But the smart money is likely to be wrong again. According to Wall Street, after Donald Trump was elected president, there was no longer a need for people to buy firearms, because the risk of tighter gun control measures had been effectively taken off the table. Yet according to the FBI, Black Friday was the single biggest day ever for processing background checks on potential gun buyers, with more than 185,000 investigations performed. If demand for guns had truly waned, that would not have happened, even with the big sales gun dealers were said to be offering.
Both Ruger and Smith & Wesson have said they see no letup in gun demand regardless of what Wall Street thinks. While the situation may normalize over time, demand is not about to go cold, as analysts have predicted several times this year.
Ruger's dividend of $1.34 a year is yielding 3.18% at the moment, and the stock trades at just 11 times earnings. While there are no estimates on what future earnings might be, its enterprise value trades at a bargain-basement rate of just 11 times free cash flow, meaning investors may just shoot out the lights by picking up this stock now.
Teva Pharmaceutical Industries
Shares of Teva Pharmaceutical Industries (NYSE:TEVA) have been on a long, steady slide all year long on slower-than-expected integration and closing of the Actavis deal, and weren't helped any last month after the Department of Justice fined the company $520 million on a bribery claim. Add in the pharmaceutical company cutting its full-year earnings forecast to a range between $5.10 and $5.20 per share -- down from its prior guidance of $5.20 to $5.40 per share -- a move Teva blamed on weaker-than-expected drug-launch sales, and you have the reason for its stock selling 43% less than it did at the start of the year.
Yet Teva is the world's largest generic-drug maker, and when it finally does integrate Actavis, it should be able to see improved margins. With the potential for generics to become an even larger percentage of all the prescriptions written than they already are -- QuintilesIMS Institute for Health forecasts they may account for up to 92% of the total, up from 88% currently -- Teva should be able to garner more than its fair share based on its size alone.
At just 6.5 times earnings forecasts, Teva Pharmaceutical has been steeply discounted by the market, but to a seemingly exaggerated extent. With its dividend of $1.36 per share currently yielding 3.79%, this is a stock dividend investors might want to inoculate their portfolios with.