Dividends can be phenomenal wealth creators for investors over the long run. And because these companies are often older, offer stability with a proven business model, and generate plenty of cash, owning a handful in your portfolio won't cause you to lose any sleep at night. Here are two healthy companies with solid dividends that you won't have to babysit.
Negativity already priced in
As investors familiar with the auto industry are aware, the most lucrative and profitable market in the world, right here in America, is at the top of this sales cycle. Sure, that means easy earnings growth is limited and General Motors (GM 4.37%) will have to find other ways to achieve it, such as improving operations or finding new revenue streams, but that negativity sure seems priced in. General Motors currently trades at an abysmal trailing-12-month price-to-earnings ratio of 5.6.
2017 Chevrolet Silverado. Image source: General Motors.
Many investors aren't giving GM credit for the surging profits over the past few years. Consider that during 2013 GM's adjusted earnings per share reached $3.18, and its current outlook for 2017 is a range of $6.00 to $6.50, essentially doubling over that span. And let's not forget that GM has other ways to grow its business. For instance, between 2013 and 2016, GM's average transaction price has moved higher each year, from $35,300 to roughly $42,000 over that time frame. If GM simply maintains its margins and continues to drive prices higher with new vehicles, which it's planning to do, and focusing on SUVs and trucks, which it's also planning to do, that will help generate stronger earnings.
GM also remains focused on creating cost efficiencies, and is currently ahead of schedule. Originally GM committed to generating $5.5 billion in cost efficiencies through material savings, logistics improvement, manufacturing and SG&A. GM has since upgraded that figure to be $6.5 billion, about half of which will go straight to investing in its brands, engineering, and technology development.
Detroit's largest automaker is paying out an annual dividend of $1.52 for an impressive 4.4% yield. While it faces headwinds with a peaking North American market, it still has other ways to grow earnings, and at a paltry P/E ratio of 5.6, you shouldn't lose too much sleep at night with so much negativity priced in.
Poised for growth
It's always comforting for investors to own shares of a company with solutions that won't go out of style. Trends change, fads fade, tastes evolve -- and predicting what will be thriving in two decades is difficult. But here's what will still be around in 20 years: the need for defense products and cybersecurity. Militaries will almost certainly be around buying weapons or defense solutions, and evildoers with computers wreaking havoc looks to be a continue trend. Raytheon Company (RTN), a technology and innovation leader specializing in defense, civil government, and cybersecurity solutions, seems poised to grow with those trends.
Image source: Getty images.
Here are a few reasons why investors can own shares of Raytheon and sleep at night. The company is well balanced in many aspects. Last year it recorded $24 billion in revenue with 31% of its business going to international customers, which is good for its future growth. Beyond that balance, its four main business segments generated similar chunks of that revenue. Its space and airborne systems (SAS) and integrated defense systems (IDS) generated 24% and 21% respectively, while its intelligence information and services (IIS) and missile systems (RMS) generated 24% and 28%, respectively.
That revenue is stable, as well, with the company's contracts numbering more than 10,000 at the end of 2016, and a backlog of orders valued in the billions -- in fact, Raytheon's bookings and backlog totaled $36.1 billion at the end of the first quarter 2017. And of course, the company has a consistently increasing dividend. In late March Raytheon increased its annual dividend payout rate by 8.9%, from $2.93 to $3.19 per share, for a yield of roughly 2%. It was the 13th consecutive year the company increased its annual dividend and is a signal that between its balanced business segments and potential international growth, its future remains bright -- making it easier for investors to sleep at night.
