Dividends are a cash return on your investment in a stock -- effectively, companies are paying you to own their shares. Since you own part of the companies in which you are investing, and thus have a right to a portion of the earnings, it only makes sense that you should expect a piece of the action via a dividend payment. Here are three companies that take returning cash to shareholders very seriously, and that also have sizable yields: ExxonMobil Corporation (XOM 0.78%), Duke Energy Corporation (DUK 1.65%), and W.P. Carey Inc. (WPC 2.36%).
1. An integrated oil giant
ExxonMobil has a yield of 4.2%. It has increased its dividend every year for 36 consecutive years, an impressive feat given that the company operates in the highly cyclical energy industry. Over the trailing 10 years, the average annual dividend increase was 8%. The most recent hike, which was announced in April, was roughly 6.5%. Although lower than the 10-year average, that's still roughly double the 3% historical rate of inflation.
Image source: Getty Images.
Exxon's yield today is toward the high end of its historical range, a function of the mid-2014 energy downturn and concerns that the diversified oil and natural gas giant has fallen behind peers now that oil prices are picking up again. There's some truth to those fears, given that Exxon's production has fallen for a couple of years and its return on capital employed rate has gone from leading the pack to simply middle of the pack.
However, Exxon has plans in the works that should help reverse these trends. For example, it is ramping up production in the onshore U.S. market, drilling offshore in Guyana and Brazil, and investing in natural gas production in Mozambique. To improve returns, meanwhile, Exxon is planning to take control of more of its investments so it can benefit from its expertise in running large projects. This oil major is a giant ship, however, so it will take time to turn things around. While other investors are being impatient, you can get paid to wait for Exxon to get things moving in the right direction again.
2. A boring old power play
Duke Energy is one of the largest electric and natural gas utilities in the United States. It yields around 4.5% and has increased its dividend every year for 13 consecutive years. The average dividend increase over the trailing 10 years was roughly 3%, right in line with inflation. However, after something of a corporate makeover that jettisoned non-regulated assets and added natural gas to the picture, Duke is targeting 4% to 6% dividend growth through 2022.
With a largely regulated business, Duke has to get the rates it charges customers approved by the government. It does this by spending money to upgrade and expand its business. The current plan calls for $37 billion worth of spending across its business (roughly 90% going toward its regulated electric assets, 8% into its natural gas businesses, and the rest to renewable power) between 2017 and 2021. That should provide ample support for the utility's growth targets.
DUK Beta (3Y) data by YCharts.
One of the biggest allures of Duke Energy's stock, however, is its incredibly low beta of 0.1, a measure of relative volatility. This suggests that Duke's stock is around 90% less volatile than the broader market. This power company won't excite you, but it can provide a solid high-yielding cornerstone to a broader dividend portfolio.
3. A rent collector
W.P. Carey is a net lease real estate investment trust (REIT). This means that it owns property that it rents out to others, but the lessees pay for most of the operating costs of the assets, including things like taxes and property maintenance. Carey's yield is 6.6% and its dividend has been increased every year for 21 consecutive years. The average annual increase over the past decade was around 8%. Carey has a long history of increasing the dividend every quarter, with the first-quarter dividend up around 2% over the same quarter last year. That's a modest hike, but there's a catalyst to watch.
Carey, a publicly traded REIT, manages non-traded REITs, one of which is nearing the end of its life. It's highly likely that Carey will try to buy that non-traded REIT (CPA-17), which will increase the size of its portfolio and should lead to a more sizable dividend increase. (At least that's what happened when Carey bought CPA-16.) In other words, there's a very real catalyst for higher dividends.
Carey's foreign diversification is unusual in the REIT space. Image source: W.P. Carey Inc.
One thing to like about Carey is its diversification. Many net lease REITs are focused on retail properties, but Carey's portfolio breakdown is industrial (29% of adjusted base rents), office (25%), retail (17%), warehouse (15%), self storage (5%), and other (the remainder). And roughly one-third of its rents come from outside the United States, largely from Europe. With a high current yield, a potential dividend catalyst, and a broadly diversified property portfolio, income investors should like what they see at this longtime dividend payer.
Time for a deep dive
ExxonMobil, Duke Energy, and W.P. Carey come from very different industries and have very different backstories, but all offer notable yields backed by long histories of annual dividend increases. Simply put, they pay shareholders well to own them. If you take some time to dig into each of these stocks, I'm confident that you'll like what you find -- and that one or more may wind up in your dividend portfolio.
