Steady income is within reach with these five stocks. Image source: Getty Images.
ExxonMobil Corporation (XOM 1.78%) has an enviable track record of paying and growing its dividend for many years. But at the same time, there are plenty of reasons to skip this biggest of the big oil companies, particularly if you're looking for a solid source of income. We reached out to five of our top contributors and asked them to write about some companies with bigger dividends than ExxonMobil.
They gave us compelling reasons to consider oil and gas logistics specialist Holly Energy Partners L.P. (HEP +0.00%), tech stalwart Cisco Systems, Inc. (CSCO 1.14%), telecom and media giant Verizon Communications Inc. (VZ 2.19%), pharma blue chip Pfizer Inc. (PFE 1.16%), and healthcare real estate upstart Caretrust REIT Inc. (CTRE +0.69%). Keep reading to find out which of these companies would make a great addition to your dividend stock portfolio.
Little company, big dividend
Tyler Crowe (Holly Energy Partners): One thing dividend investors want from an investment in ExxonMobil is stability with modest growth. For decades ExxonMobil has been able to deliver that, even through some of the biggest times of crisis for the oil and gas industry. It's one thing to recommend a company that has a higher dividend yield than ExxonMobil. It's an entirely other thing to find one that can deliver a dividend that has the ability to weather any storm the market can throw at it and even give room for growth.
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One that has developed a decent reputation for doing just that over the years is oil and gas logistics specialist Holly Energy Partners. While it may not have the size and scale of many other transportation and logistics companies, it makes up for it with its contract structures and management's prudent approach to growth. All of the services the company provides are done on 100% fee-based contracts with strong minimum volume commitments from its customers. In doing so, it takes out almost all of the commodity price risk associated with the oil and gas industry. Also its modest growth profile is done in a way to maintain a manageable debt level and continue to deliver payout increases. The most recent distribution increase marked the 48th consecutive quarter in which management raised its payout.
With its distribution yield of 7.1% and a history of raising its payout in a sustainable, consistent manner, investors looking for a little more yield than shares of ExxonMobil should take a look at Holly Energy Partners.
A dominant tech company
Tim Green (Cisco Systems): Networking hardware giant Cisco Systems has been increasing its dividend at an impressive pace over the past few years. Cisco's quarterly dividend has more than tripled since mid-2012, with the most recent payment of $0.26 per share good for a yield of about 3.45%.
Cisco's long-term growth includes industrial users, not just traditional tech applications.
Cisco dominates its core switching and routing markets, although growth has been elusive in recent years. The company has been investing in growth businesses such as security and collaboration, but broad weakness during Cisco's most recent quarter and lackluster guidance suggests that a return to growth may take a while.
The good news for dividend investors is that Cisco generates a tremendous amount of cash. Free cash flow came in at $12.4 billion during fiscal 2016, putting the payout ratio based on this number at about 42.5%. That leaves plenty of room to grow the dividend even without much earnings growth. Investors shouldn't expect Cisco's rapid dividend growth of the past few years to continue unless earnings pick up. But a solid yield and the potential for modest dividend growth going forward make Cisco a good choice for dividend investors.
A low-risk telecom giant
Steve Symington (Verizon Communications): With a 4.7% dividend that's been raised every year for the past decade, Verizon stock offers an attractive mix between stability and growth potential.
Of course, there's no denying Verizon has had a hard time finding growth, given its increasingly competitive core markets. Excluding 2015 contributions of its since-divested landline business, revenue and adjusted net income per share fell 2.9% year over year last quarter, to $30.9 billion and $1.01, respectively. But Verizon also boasts exceptional customer loyalty, with retail postpaid phone churn below 0.9% for the past six straight quarters -- a testament to its continued investments in its market-leading network. And that leadership should only become more pronounced after it fulfills its promise to be the first company to launch a 5G fixed wireless broadband network in the United States.
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Meanwhile, Verizon's Fios fiber-optic services are enjoying renewed growth, with FiOS revenue up 4.4% last quarter, to $2.8 billion, thanks to the additions of 90,000 FiOS internet connections and 36,000 FiOS Video connections.
Verizon has also made a number of acquisitions to position itself for longer-term growth, including its purchase of connected vehicle solutions company Telogis and an agreement to acquire Yahoo! last July, the acquisition of smart-city solutions company Sensity Systems in September, and its acquisition of fleet and mobile workforce management company Fleetmatics completed in November. The fruits of these purchases will take time to realize, but collectively they should serve to only expand the scope and power of Verizon's business over the long term. And the earlier you buy shares, the longer you'll have to allow the power of Verizon's juicy dividend and compounding returns to do their work.
This drugmaker is a great way to gain exposure to the high-flying pharma space
George Budwell (Pfizer): With a yield of 3.88% at current levels, Pfizer offers a slightly richer payout than ExxonMobil. But the real difference between these two income-generating stocks is arguably the tailwinds facing their respective industries.
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The pharmaceutical industry, after all, is experiencing a golden era stemming from an uptick in innovation, an aging and rapidly expanding global population, and broader access to modern healthcare around the world. The same positive outlook simply can't be said for traditional oil and gas giants like Exxon that are facing significant pricing pressure at the moment, along with the ongoing global transition to renewable forms of energy, such as advanced biofuels and solar.
So even though Pfizer has been resoundingly criticized for its hefty price increases on older medicines, the cumulative effect of these tailwinds should be more than enough to offset any political blowback. Simply put, Pfizer should have little problem increasing sales volumes for new drugs such as its breast cancer treatment Ibrance, or its slate of novel vaccines, to drive growth over the long haul. As such, this drugmaker's comparatively high dividend for a large-cap pharma stock should not only be safe in the near term, but it should continue to grow at a fairly regular clip going forward.
A small company riding a very big long-term trend
Jason Hall (Caretrust REIT Inc.): If you're looking for a strong contender for long-term growth in both the dividend and share price, Caretrust REIT should be on your list. Caretrust owns senior housing and healthcare facilities and then works with healthcare operators, which lease and operate the properties Caretrust owns. Caretrust is in an excellent position to grow much larger, as this market is both underserved and will need to expand significantly over the next couple of decades to support an aging baby boomer population.
According to a recent company presentation, there are nearly 10% fewer skilled nursing facilities operating in the U.S. now than there were 15 years ago, while the over-65 population is growing. Between 2010 and 2040, the elderly population is expected to more than double, to over 80 million Americans. Caretrust is very likely to be a major beneficiary of that growth, as the company builds and acquires more and more facilities to house and care for this aging population.
With less than 160 properties today, Caretrust is a very small fish in a very big -- and growing -- pond. If management can continue allocating capital well, Caretrust has the makings of a portfolio-changing income investment over the next 20 years.
