With an impressive dividend yield of 4.5% and a 13-year history of increasing its payout, Verizon Communications (VZ 1.63%) is likely to be high on an investor's list for consistent, reliable dividends to supplement income or build wealth over time. If there is one knock on the company, it's that its payout only grew at 2.7% annually over the past five years.
As nice as that 4.5% yield sounds, there are stocks out there that are just as likely to provide Verizon's payout security while giving you a higher yield and better growth prospects. We asked three of our investing contributors to each highlight a stock with a higher yield than Verizon's that should be on investors' radar. Here's why they picked Ford Motor Company (F 1.19%), Cedar Fair (FUN +0.00%), and Cheniere Energy Partners (CQP 0.28%).
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An overlooked income story
Daniel Miller (Ford Motor Company): Income investors love finding juicy dividend yields, and few companies boast the dividend yields that automakers are currently dishing out. Ford is paying out a quarterly dividend of $0.15 per share for a yield of 4.7%, and that doesn't include its supplemental annual dividend, which is paid out depending on profitability. In fact, between regular dividends, supplemental dividends, and share repurchases, Ford has returned $15.4 billion to shareholders between 2012 and 2017.
With U.S. new-vehicle sales slowing after years of healthy growth, it's important that automakers cut back on costs. Obviously, Ford will still invest in growth, but it hopes to cut automotive cost growth by 50% between 2017 and 2022 by reducing product engineering by $4 billion and material costs by $10 billion. It'll attempt to cut costs without sacrificing quality similar to how it redesigned the F-Series: It reduced F-150 weight by 700 lbs. and improved the fuel economy by 19%, all while its average transaction price jumped 16%.
And while the U.S. sales pace levels off, Ford plans to double down in China. It aims to launch 50 new models in China by 2025, which management believes will grow revenue in China by 50%. That alone would be a huge win for investors, but not only is that country the largest auto market in the world but it's also at the forefront of electric-vehicle growth. The electric-vehicle market in China, and also in the U.S., will be critical going forward.
Sure, sales growth will be tough for automakers from here. But Ford is cutting a bigger dividend check than Verizon and is prepared to cut costs and expand globally, which sounds like a good recipe for income investors.
Get paid to have fun
Demitri Kalogeropoulos (Cedar Fair): Cedar Fair is having a good year. After setting attendance records in 2016, revenue is up 7% so far in 2017 thanks to a healthy split between increased attendance and higher average spending. In early November, the theme park giant's management team responded to those positive operating trends by hiking the dividend payout 4%, which has pushed the stock's yield to a hefty 5.3%.
As a regional entertainment specialist, Cedar Fair's business is far more sensitive to economic downturns than Verizon's, and so income investors shouldn't ignore the risk that a prolonged industry slump will cause a cut in its dividend. Under normal conditions, though, this operating approach generates consistently solid returns. Park improvements drive steadily rising attendance and higher guest spending, which produces cash flow that the company can invest in additional upgrades.
CEO Matt Ouimet and his team believe this process can deliver a 4% boost in adjusted earnings each year. They plan to devote about 10% of sales into new rides, attractions, and park infrastructure, with nearly all the resulting free cash flow headed back to shareholders in a dividend distribution. That gives income investors a solid shot at approximately 4% annual growth in this dividend, or roughly double the increase that Verizon announced in the latest fiscal year.
VZ total return price data by YCharts.
Dividend growth is about to hit its stride
Tyler Crowe (Cheniere Energy Partners): For years, Cheniere Energy Partners was in the middle of a complete transformation. Its original business of importing liquefied natural gas (LNG) was quickly disrupted by commercial development of shale gas in the U.S. So management quickly reversed course to reconfigure its import terminal into an export terminal. Consequently, the company didn't make much money and only paid a token distribution to keep shareholders around during the transition.
Today, though, Cheniere Energy Partners has almost finished the first phase of the conversion process and, as a result, is making more than $5 billion annually and management expects to generate $1.8 billion to $1.9 billion in EBITDA for the fiscal year. With that much operating cash coming in the door, it feels confident enough that it can raise its dividend payment for the first time in years.
CQP dividend data by YCharts.
What's more encouraging is that we should expect Cheniere Energy Partners' payout to keep growing in 2018. Only three-fourths of the export terminal is fully operational, and the rest of its phase one development should be done in the coming months. Thanks to the fixed-fee contracts it has signed with customers, once that happens, it should generate gobs of cash that can be returned to shareholders.
As it stands today, Cheniere Energy Partners pays a hefty dividend yield of 5.9%. Barring any catastrophe, investors can expect this payout to increase significantly in 2018 and enjoy the relative security of a business backed by recurring revenue contracts.
