3 Dividend Stocks for Shrewd Investors

Bristol-Myers Squibb, LCI Industries, and Boeing are shrewd companies that smart investors might want to add to their portfolios soon.

Todd Campbell
Todd Campbell, Rich Smith, and Dan Caplinger
Jun 9, 2017 at 11:09AM
Health Care

LCI Industries (NYSE:LCII), Bristol-Myers Squibb (NYSE:BMY) and Boeing (NYSE:BA) are three dividend-paying stocks that shrewd investors might want to add to their portfolios. All three companies have proven they know how to grow their businesses through thick and thin, and importantly, each pays a dividend yield that's north of the S&P 500's yield. So if you're looking for a savvy investment to add to your income portfolio, read on to see if one of these stocks is right for you. 

This hardheaded business refuses to overpay for growth

Rich Smith: (LCI Industries): Shrewd... adjective... "Marked by clever discerning awareness and hardheaded acumen."

A row of increasingly taller stacks of coins.


That's how Merriam-Webster defines shrewd. And when I read that definition, I think back to one of the first stocks pointed out to me by Motley Fool co-founder Tom Gardner -- Drew Industries, now known as LCI Industries -- way back in 2005.

LCI isn't a "sexy" company. But it's a shrewd business operator. Supplying components to manufacturers of recreational vehicles and manufactured homes, LCI avoids the dilemma of having to be the most popular brand name in RVs, or in housing. It supplies parts to everyone, and profits no matter which of its customers ends up winning the RV market.

What I like most about LCI Industries, though, and the reason I own LCI stock today, is its shrewd approach to growing its own market share. Specifically, the company has a strict list of criteria it follows when considering acquisitions of even complementary businesses, insisting that such purchases be "immediately accretive" to its own bottom line, promising to be "disciplined and patient" in its purchases, and most crucially, promising not to pay more than "6 times" earnings before interest, taxes, depreciation, and amortization (EBITDA) for any purchase. (For context, LCI's own EV/EBITDA ratio is 9.0.) Unless it can find an acquisition cheap enough to meet this standard, LCI prefers to invest its money in building its own business through organic growth.

I admit -- I've cribbed that "6 times EBITDA" standard for use in my own investing on the assumption that, if management as smart as LCI thinks 6x EBITDA is a safe price to pay for a business, then it's probably safe for me to use, as well. And while I maintain my own investing "discipline," patiently waiting for opportunities to invest at 6x EBITDA to emerge, I'm also happily cashing my market-beating 2.2% dividend checks from LCI. You might want to do the same.

Time to look past the noise on this big-cap drugmaker

Todd Campbell (Bristol-Myers Squibb): I don't know about you, but buying one of the most innovative big-cap pharmaceutical companies at a 30% discount to its price last summer seems pretty shrewd -- especially given that the sell-off in its shares has boosted Bristol-Myers Squibb's dividend yield by about 1%, to nearly 3%.

Last year, Bristol-Myers' share price fell after it reported disappointing results for Opdivo as a first-line lung-cancer treatment. Opdivo, a checkpoint inhibitor, has been a major source of the company's growth, and if successful, the trial could have expanded its use to even more patients.

Certainly, some discouragement is warranted, but I can't help but think the sell-off was overdone. After all, there are still dozens of studies underway that could expand Opdivo's use, including studies that could still make it a go-to first-line lung-cancer drug. Opdivo's sales won't grow as quickly this year as they might've, but we're still talking about a drug that racked up $1.1 billion in first-quarter sales, up 60% year over year.

Opdivo isn't Bristol-Myers' only source of growth, either. A 50% jump in sales of the anticoagulant Eliquis helped propel first-quarter revenue up 12.9% from a year ago in Q1. And Bristol-Myers Squibb's profit is still climbing, too. First-quarter earnings per share (EPS) were $0.84, up 14% from last year, and exiting the quarter, management increased -- not decreased -- it's full year EPS outlook to at least $2.85 from $2.70.

Bristol-Myers has plenty of cash flow coming in and a dividend that's likely to keep growing. Therefore, I think picking up shares on sale is incredibly shrewd.

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Fly higher with this stock

Dan Caplinger (Boeing): The best dividend stocks are those that are also growing at a healthy clip. Boeing has been a huge beneficiary of the recovery in the airline industry, as its airline customers have been flush with cash and looking to spend it on upgrading their fleets. Boeing's many new designs for the commercial aerospace industry offer more efficient operations and new features that older aircraft lack, and the aircraft manufacturer has done a good job of holding its competitors at bay and cashing in on lucrative sales.

Boeing's next growth story could come from its defense business. The company is a leading defense contractor in the industry, and investors expect calls to increase the defense budget to play to Boeing's strengths. Even though the Trump administration has called out Boeing on the cost of some projects, like its Air Force One contract, the defense industry has nevertheless seen new opportunities to make money, and that will inevitably lift Boeing's business higher.

What's surprising for many investors is that Boeing is a dividend giant, with a yield of 3% despite dramatic gains in its stock price over the past year. With the prospects for future dividend growth, as well, Boeing is worth a closer look for income investors looking for growing businesses.