The best dividend stocks have this charming tendency to come attached to incredibly boring business models. There is absolutely nothing wrong with that, as boring and predictable companies of generating stable and huge cash flows. Dividend policies directly fueled by cash flows are enough to drive an income investor distracted.
That's the right way to do it. Cash-powered dividends are also a sign of a mature business that has seen its share of hard times -- and will make it through a few more large-scale challenges as well.
On that note, here are three fantastic dividend payers whose products and services you use every day, and you still might not even know their names. Boredom can be beautiful.
You might draw a blank when I bring up RPM International (RPM 1.67%). Some of the company's product brands will feel more familiar. This is the company behind Rust-Oleum paints and DAP caulk, Flowcrete flooring systems and Carboline fireproofing coatings. Even if you don't actually recognize these brands, RPM International's products can probably be found all over your house and your office, just for starters.
RPM currently offers a dividend yield of 2.4%, fully paid out of the company's rock-solid cash flows. And here's the best part: RPM's dividend payouts are growing quickly.
That chart makes a big difference over time. If you bought $10,000 of RPM International's stock at the turn of the millennium, that investment would be worth a market-beating $58,900 today. Not bad, but there's more. If you also reinvested the dividends into buying more RPM stock along the way, you'd be looking at $117,800 instead.
Retail Opportunity Investments Corp.
All right, so how about Retail Opportunity Investments Corp. (ROIC)? Not terribly familiar? Well, maybe you don't live in the company's target markets in California, Oregon, and Washington. And even if you do, maybe those "Leasing: Call ROIC" signs at the local strip mall didn't strike you as an investable company name.
ROIC is a real estate investment trust (REIT) that manages high-quality shopping centers in hand-picked parts of the three states mentioned above. The company focuses on strip-malls anchored by solid supermarkets such as Trader Joe's and Kroger (KR 0.06%), all located in densely populated neighborhoods whose residents fall in the middle- and upper-income brackets.
It's another solid business model that generates tons of cash. As a REIT, the company is required to pay out most of its profits in the form of dividends. ROIC collected $295 million of top-line revenues over the last four quarters, retaining 45% of that as free cash flows, and paying out a cool $100 million in dividends.
The yield currently stands at a crazy 8.8%. The coronavirus panic cut ROIC's share prices in half this year, doubling the effective dividend yield in the process. Analysts argue that virus lockdowns are bad for retailers, which means that ROIC might lose some of its tenants if the shelter-in-place orders stick around for too long.
That's true enough, but ROIC's favorite anchor stores are of the "essential retailer" ilk -- drugstores and grocery stores that we can't do without. Many of ROIC's shopping centers may change over the next couple of years as some weaker retailers fall of the map to be replaced by new names. I see it as a short-term slowdown that won't hurt ROIC's business in the long run.
In other words, you can lock down some absolutely stunning dividend yields if you buy ROIC shares today.
Please tell me you've heard of cell phones. Maybe you're even using one to read these very words. And unless you're hooked up to a Wi-Fi connection, chances are that the signal is passing through a cell tower somewhere. American Tower (AMT -0.11%) is a leading name in that industry.
American Tower generally owns and maintains land and tower structures where tenants such as Verizon (VZ -0.90%) and AT&T (T -2.41%) can install and run their wireless networking equipment. The company owns or leases roughly 180,000 such sites around the globe, including 41,000 American locations.
Yep. Despite a name so American that you can smell the apple pie, most of American Tower's operations fall outside U.S. borders.
This company's growth plans include further expansion overseas and adding more tenants to each managed location. These ideas have worked well over the last decade, boosting American Tower's annual revenues from $1.7 billion to $7.5 billion while quadrupling its annual EBITDA profits to $4.7 billion. Dividend payouts rose by 414% in the last eight years.
This company will basically stick around forever, gently guiding its rising revenue streams directly into investor pockets through a steadily increasing dividend. If the dividend yield doesn't look all that impressive today at 1.8%, it's only because its stock prices are skyrocketing at a market-stomping rate -- especially if you're reinvesting your dividends.