If you are a dividend investor, the current low interest rate environment has probably been very frustrating. There are high yielding stocks around, of course, but they're often backed by struggling and/or financially weak companies. Investing in dividend stocks for the long-term means finding the right mix of yield, financial strength, and long-term opportunity.
If you're looking for healthy, long-term dividend stocks, there are three names that should be on your watch list: integrated oil giant ExxonMobil Corporation (XOM -2.75%), food maker Hormel Foods Corporation (HRL -0.81%), and senior housing owner Welltower Inc. (WELL -0.31%). Here's a quick rundown on each.
1. Down but not out
Exxon has some issues to deal with, which has caused investors to push the company's shares lower even as stronger performing peers have seen notable stock gains. But now the oil giant's yield is up over 4%, toward the high end of its historical range. And its price to tangible book value is lower than it has been since the 1980s. The company looks like it's trading at value levels today.
The company's falling production and weak returns on invested capital relative to historical results are very real problems. That said, Exxon has plans to address them both: On the production front, the company is ramping up capital spending on key energy projects, including onshore U.S. oil and gas drilling, offshore oil in Guyana and Brazil, and natural gas in Mozambique. To help improve its returns it's taking control of more of its investments so it can leverage its expertise in successfully running large projects.
It will take time to turn this ship, but with a $330 billion market cap that shouldn't be much of a surprise. In the meantime, however, investors can add a high yield stock with a long track record of rewarding investors. To put a number on that, Exxon has increased its dividend every year for 36 consecutive years despite operating in a highly cyclical industry. In other words, it's been through tough times before -- and the dividend has not only held, but continued to rise. This time isn't likely to be any different.
2. Shifting with its customers
Hormel is probably best known for making SPAM, a processed food product that you'll find in the center of any grocery store. The only problem is that shoppers are increasingly shifting to the periphery of the store to buy fresher and healthier products. This has left investors downbeat on food makers like Hormel, and its dividend is currently a touch over 2%, toward the high end of its historical range.
Hormel, however, has a strong history of shifting with the times. Most recently it has been selling off brands like Diamond salt that aren't compelling growth opportunities, and buying brands like Wholly Guacamole and Columbus deli products that resonate more with consumers. It has also been expanding globally, with investments in China and South America. International is just a modest part of the company's business today, but holds great promise as a growth engine.
Hormel has increased its dividend every year for 52 years. Moreover, even after a number of relatively large acquisitions to support growth, its debt levels remain modest, with long-term debt making up just 10% of its capital structure. Debt to EBITDA, meanwhile, is less than 0.5 (for reference, Kraft Heinz's debt to EBITDA is over 4). Hormel's stock is rarely cheap, but the relatively high yield suggests it is fairly priced today if you can wait for it to work through the current industrywide issues.
3. The story hasn't changed
Last up is Welltower, a real estate investment trust, or REIT, that focuses on owning senior housing facilities. The issue here is a mismatch between long-term, demographically driven demand and current supply.
The big picture is that Baby Boomers are set to expand the ranks of those aged 65 and up, in the United States and around the world. This will inevitably lead to greater demand for senior housing. It's not a matter of if this will happen; the demographics of the situation mean it is a question of when.
But this isn't a secret, and healthcare property developers have been building in anticipation of demand. That's made it harder to fill up existing properties and raise rents. Investors have pushed Welltower shares lower in response, lifting the yield to a very generous 6.6%.
Welltower's properties, however, continue to perform reasonably well. In fact, the REIT expects rents from its current roster of properties to rise by 1% to 2% this year. That's partly because the company focuses on owning properties in high-barrier-to-entry markets -- in and around major U.S. cities, for example. And while occupancy declined in the fourth quarter of 2017, that was largely driven by an increase in so-called "move outs" because of a tough flu season. Welltower should easily refill those rooms over time, with rent hikes offsetting the impact on revenues.
This REIT is one of the largest healthcare property owners, and has a long history of excellence behind it. It's also increased its dividend every year for 14 consecutive years. With shares down by roughly a third since the start of 2015, long-term investors looking for big yields have a value-priced opportunity here.
At least one should fit the bill
These are three very different companies in three very different industries. If you do a deep dive on this trio, I'm sure you'll find a stock you like enough to add to your dividend portfolio. Exxon, Hormel, and Welltower are, indeed, facing some problems today -- which is why you can pick them up at bargain prices. But they have long histories of success and are financially strong. Given enough time, the long-term opportunities ahead of them will be worth the wait... and you can collect the dividends all along the way.