It's no easy feat beating ExxonMobil's more than respectable 3.5% dividend yield. But it's not impossible, either. We asked several of our investors for a few stocks that not only beat Exxon's payout, but offer other attributes such as growth potential as well.
After a bit of due diligence, our investors settled on tech titan IBM (NYSE:IBM), document storage leader Iron Mountain (NYSE:IRM), and pharma king Pfizer (NYSE:PFE) as the three stocks that pay you more than Exxon.
Steady, reliable income and growth
Tim Brugger (IBM): At 3.7%, IBM's dividend yield is not only higher than Exxon's, it's nearly twice its peer average payout of just 1.9%. The better news is that IBM's reliable, and consistently growing, dividend yield is just one way long-term investors will get paid.
IBM CEO Ginni Rometty's shift away from legacy enterprise hardware is taking root. One of the core segments of IBM's strategic imperatives is the cloud, and it's hitting on all cylinders. In the third quarte, cloud sales soared 20% to $4.1 billion. On a trailing-12-month basis, IBM boasts a cloud run-rate of $15.8 billion.
The cloud isn't the only segment of IBM's strategic imperatives showing signs of growth. Mobile sales climbed 7% last quarter, followed by a 5% increase in data analytics. Data security, acknowledged by most pundits as another explosive opportunity, reported a 51% jump in revenue last quarter.
One for the record book
Keith Speights (Iron Mountain): Take a list of the 1,000 U.S. companies with the most revenue. Throw a dart at the list. The odds are 19-to-1 that the closest company to where your dart lands will be a customer of Iron Mountain. It's the world's leading records storage and information management provider, with more than 230,000 customers.
Even with this impressive customer base, Iron Mountain's market cap of around $10 billion is only a fraction of ExxonMobil's. However, Iron Mountain beats the oil and gas giant in an area near and dear to the hearts of investors: dividend payouts. Iron Mountain is a real estate investment trust (REIT), which means it must distribute at least 90% of earnings to shareholders as dividends. Its yield currently stands at 6.3%, heads and shoulders above ExxonMobil's yield of 3.5%.
Iron Mountain is about as close as you can get to a dividend investor's dream. Not only does it have a fantastic yield, but the company expects to increase its dividend by at least 4% annually. Over the last five years, Iron Mountain's dividend has more than doubled. During the same period, ExxonMobil's dividend also grew -- but by less than one-fifth as much.
The prospects for Iron Mountain seem as rock-solid as its name. More records and data continue to be produced, driving demand higher for the company's storage facilities. Iron Mountain's customer retention rate is superb. I expect great dividends from this REIT for a long time to come.
A solid option in the healthcare sector
Cory Renauer (Pfizer, Inc.): At 3.5%, ExxonMobil's dividend yield is hard to beat. On the surface, Pfizer might not seem like a much better option with a slightly higher 3.7% yield. Over the long run, though, I think America's biggest pharma could return a great deal more cash to shareholders than the oil major.
Let's start with dividend growth rates. Over the past three years, ExxonMobil raised its payout at a middling 4.3% annual rate, and the most recent increase was just 2.7%. Pfizer isn't the speediest dividend-paying drugmaker, but it did raise its payout at a 7.2% rate over the past three years, with a recent 6.7% bump.
A look at the percentage of profits each company uses to make dividend payments suggests Pfizer will continue outpacing Exxon in 2018, and perhaps for much longer. The oil major used a frightening 84% of the free cash flow it generated over the past year to meet its dividend obligations. Despite significantly raising its payout, Pfizer used just 57% of trailing free cash flow to make its dividend payments over the past year.
An arguably better dividend is just one reason investors will want to consider Pfizer in 2018. A recent share buyback authorization gives management a stunning $16.4 billion to apply to share repurchases in the new year. Also, sales of recently launched cancer therapies Bavencio and Ibrance are soaring, and the potential sale of its consumer healthcare business could allow the company to remain focused on the development of innovative medicines.
Cory Renauer has no position in any of the stocks mentioned. Keith Speights owns shares of Pfizer. Tim Brugger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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