Investors interested in good dividend stocks can have it all. It just takes a little looking when you're bargain hunting, particularly when seeking high dividends that are safe, in stocks that have strong growth potential.
I looked at companies with dividend yields of at least 4% whose balance sheets were not only healthy this year, but that also point to revenue growth next year. Then, I trimmed the list by including only companies with a solid history of raising dividends and whose cash dividend payout ratios are under 50%, so there was little chance the dividends would be at risk. From that list, I focused on undervalued companies.
Westlake Chemical Partners (WLKP 0.27%), AbbVie (ABBV -1.03%) and SpartanNash (SPTN -0.72%) all made the cut.
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Westlake Chemical Partners is a steady earner
The share price of Houston-based Westlake Chemical Partners is down more than 18% year to date. But over the past three months, the stock is up more than 8%. The company raised its quarterly dividend this year to $0.47 a share, giving it a yield, at current share prices, of 8.77%. Over the past five years, it has raised its dividend by 53%.
Westlake Chemical Partners came into existence in 2014 and has raised its dividend each year. Westlake Chemical Corporation created Westlake Chemical Partners as a limited partnership to buy and operate ethylene production facilities. Ethylene is a hydrocarbon gas widely used in a variety of products.
The company operates an ethylene plant in Calvert City, Kentucky, and two in Lake Charles, Louisiana. The Lake Charles facilities were affected by Hurricane Laura in August, but despite that, Westlake Chemical Partners reported third-quarter net sales of $217.7 million, ahead of the $216.6 million it earned in the same period last year, though for the year, sales are down 6%. It also had a reported $51.5 million in net income this year, a 17% improvement, year over year.
The company has predictable cash flows because of its relationship with Westlake Chemical, which purchases 95% of the company's ethylene for a cash margin of $0.10 per pound after operating costs, maintenance, capital expenditures, and reserves, according to its third-quarter report.
WCP's cash dividend payout ratio of 15.98% means there won't likely be a need for a dividend cut any time soon. On top of that, the stock's price-to-earnings ratio (P/E) is 11, whereas the average P/E in the industry was 24.11 in the last quarter, making it a bargain with a nice upside.
SPTN Dividend data by YCharts
Marching into step with SpartanNash
SpartanNash is the fifth-largest food distributor in the United States and the leading distributor of grocery products to U.S. military commissaries. The Grand Rapids, Michigan, company owns 155 retail stores and distributes to more than 2,100 independent grocers in the United States.
Its stock is up more than 28% year to date. While a lot of that is due to the pandemic's eat-at-home push, SpartanNash's long-term numbers show a nice uptrend, with 18 consecutive quarters of sales growth. For the year, the company reported $7.1 billion in sales, up 8% year over year.
Speaking of uptrends, the company's annual dividends have grown every year for the past decade, and for the past five, they've grown at a rate of 28.33%. That dividend produces a yield of 4.18%, which makes holding onto the stock a great idea. With a cash dividend payout ratio of 14.55%, it appears quite safe.
There's another big reason to think long-term with SpartanNash. It has been providing groceries to Amazon.com since 2016. In October, the companies came to terms on an agreement that allows Amazon to buy up to 15% of SpartanNash stock by 2027 and strengthens their relationship, more than doubling the amount of groceries Amazon would purchase from SpartanNash to use in its Fresh grocery stores.
While a lot of people bought SpartanNash stock following the Amazon announcement, it still appears to be a good deal, with a P/E of 9.53, compared to the typical P/E in the consumer staples industry of 24.15.
AbbVie continues to be a great dividend play
AbbVie's shares are up more than 22% year to date. The pharmaceutical company, headquartered in Lake Bluff, Illinois, has raised its dividend every year since it spun off from Abbott Laboratories in 2013. Counting its time as part of Abbott, it is a Dividend Aristocrat, with 48 consecutive years of increased dividends.
AbbVie has grown revenue more than 48% over the past five years and through nine months this year, the company is on a torrid pace. In the third quarter, reported revenue was $12.1 billion, up 52% over the same period last year. Through nine months, the company has posted $31.9 billion in net revenue, a 30% improvement year over year.
Those are great numbers, but on top of that, the company's dividend offers a yield of 4.35%. Over the past five years, AbbVie has increased its dividend a whopping 128%. That has come at a cost, though, as it has the highest cash dividend payout ratio of the three at 47.04%, though considering the company's expected growth, the dividend should be safe. Though it also has the highest P/E of the three at 22.79, that's still below the typical healthcare stock's P/E of 29.39.
SPTN PE Ratio data by YCharts
All three are good options
I see good reasons for picking any of these stocks because of their overall strength and dividends. I think SpartanNash has the best long-term potential of the bunch because of its arrangement with Amazon.
I also see plenty of upside for Westlake Chemical Partners, and its dividend is nearly twice that of my other two favorites. The company's stock is still down for the year, but looking at its financials, it's clear to me that it is underpriced.
AbbVie is probably the most risk-free choice of the group. The company's strong pipeline of drugs should help drive profits for years and the company has the best recent history of dividend increases.
