Buying and holding high-quality dividend stocks is arguably the best way for investors to predictably achieve outsized returns over the long run. But if everybody knows about those stocks, it stands to reason that it will be much harder to outperform the broader market. To find market-beating potential, you need to venture off the beaten path.
To that end, we asked three Motley Fool contributors to each find a dividend stock that isn't widely known to investors today. Read on to learn why they chose eBay (EBAY 4.06%), VEREIT (VER), and China Mobile (CHL).
A shiny new dividend for a promising business
Steve Symington (eBay): OK, eBay is obviously a well-known business. But it's not known for being a dividend stock yet because the online marketplace only just initiated its first-ever dividend -- starting with a $0.14-per-share quarterly payout -- along with its fourth-quarter 2018 report two months ago. Along a similar vein, eBay also took the opportunity to boost its share-repurchase authorization by $4 billion, bringing its planned buybacks to $5 billion for 2019.
The moves came as eBay achieved record fourth-quarter and full-year earnings in 2018. And, according to CEO Devin Wenig, the company made the decision to start paying a dividend as a sign of their confidence "in the strength our business and future growth prospects."
In particular, eBay is making investments to not only improve the user experience for its core marketplace segment, but also to capitalize on incremental growth opportunities in the payments and advertising spaces.
But this incremental growth won't materialize in the near term; eBay's current guidance calls for modest currency-neutral growth of 1% to 3% in 2019. At least shareholders can collect a dividend now, however, while they wait for eBay's strategic investments to begin to yield fruit. When that happens, these generous capital return initiatives could go a long way toward bolstering investors' returns.
The other giant net lease REIT
Reuben Gregg Brewer (VEREIT): Most real estate investment trust (REIT) investors know about net lease industry bellwether Realty Income (NYSE: O). However, VEREIT, with a portfolio of nearly 4,000 properties, is one of the largest public net lease REITs and few people have heard of it despite a robust 6.6% yield (nearly 3 percentage points higher than that of Realty Income).
Positives here include an investment-grade balance sheet and management's projection of a solid funds from operations (FFO) payout ratio of 80% in 2019. Occupancy was 98.8% at the end of 2018. And, unlike Realty Income and other focused peers, VEREIT's portfolio is diversified across the retail (about 41% of 2018 rents), restaurant (22%), office (21%), and industrial (16%) sectors. That provides balance and increases the avenues available to find opportunistic acquisitions.
So why does VEREIT fly under the radar? It was once known as American Realty Capital Properties, a REIT that reported an accounting error driven by a growth-at-any-cost mentality. That was way back in 2014. A new management team has completely remade the company.
Back on its feet again, the company faces only one major headwind from here: legal costs related to the accounting error. However, this issue is being resolved as the company has already settled with owners of roughly a third of the REIT's shares and the ultimate cost is coming into better focus. More important, VEREIT looks like it will weather the issue in relative stride. In the meantime, the fat yield is worth the added uncertainty for income investors willing to monitor their portfolios closely.
China's biggest telecom
Leo Sun (China Mobile): Many investors consider domestic telecoms like AT&T (NYSE: T) and Verizon (NYSE: VZ) to be solid income stocks. However, they probably know a lot less about China Mobile (CHL), China's largest telecom.
China Mobile's total mobile users grew 4% to 925 million in 2018. Within that total, its number of 4G customers climbed 10% to 713 million. Its total wireline broadband customers grew 39% to 157 million.
Those growth figures look healthy, but government regulators forced China Mobile and its two smaller peers -- China Telecom (NYSE: CHA) and China Unicom (NYSE: CHU) -- to lower their wireless fees and eliminate data roaming charges last year. That move was aimed at boosting wireless adoption rates across China ahead of its rollout of 5G networks, but it caused China Mobile's average revenue per user (ARPU) to decline 8% for the year.
That headwind is throttling China Mobile's near-term earnings growth, but its long-term prospects still look bright. Its broadband ARPU is still rising, and its Internet of Things (IoT) service revenue rose 40% annually as its number of IoT connections surged 141%. 5G upgrades should also eventually get its wireless ARPU growth back on track.
China Mobile pays semi-annual dividends that equal roughly half its earnings, which translated to a yield of 3% to 5% over the past five years. That high yield and China Mobile's low P/E ratio of 12 make it a solid income play for conservative investors.
The bottom line
We can't guarantee that any given stock will go on to beat the market. But dividends certainly help. And between eBay's recently initiated payout and strategic growth investments, VEREIT's high yield and diversified portfolio, and China Mobile's encouraging long-term growth potential, these contributors believe all three companies are poised to do exactly that.