Interest rates are heading higher, and that could be bad news for low-yielding stocks. Will investors trade in their stocks with low dividends for fixed income vehicles? With the inflation-indexed Series I Savings Bonds currently yielding 7.12% it takes a beefy payout to compete.
Camping World Holdings (CWH -0.96%), Chesapeake Energy (CHK 2.44%), and Zim Integrated Shipping Services (ZIM -0.43%) should all be paying out at least 8% yields this year. Let's take a closer look at why these three names could be top draws for income investors in 2022.
Image source: Getty Images.
1. Camping World
Selling recreational vehicles (RVs) may not seem like a hotbed for income investors, but Camping World has beefed up its distributions since hitting the market with its first quarterly dividend more than five years ago. Business is booming for new and used RV sales as folks take to the blue highways to travel safely across the country, and the real winners are the heavier pockets of its shareholders.
Camping World was paying $0.0732 a share every three months for more than three years, but its disbursements have exploded alongside its growth lately. The big box retailer of RVs and related accessories and outdoor gear recently boosted its quarterly dividend by 25% to $0.625 a share earlier this month. The hike pushes its yield to 8.4%.
Revenue is accelerating here. Camping World's revenue has risen 2%, 11%, and 27% in the last three years, respectively. Profitability is growing even faster. The pandemic-related tailwind isn't sustainable, and rising gas prices may cool interest in potential RV buyers. You still have to like Camping World here until its growth prospects and its payouts hit the brakes.
2. Chesapeake Energy
Pull up a quote on Chesapeake Energy and you may find yourself questioning the varying yields. I checked three different sites on Wednesday, and the payouts were 2.2%, 3.6%, and 8.8%. They're all fair to a certain extent, but reality this year will likely skew to the high end.
Chesapeake Energy is a multi-faceted energy company that emerged from bankruptcy early last year. It's a problematic introduction for a stock, but it also means the oil and natural gas company returned with a healthier balance sheet than many of its highly leveraged peers. Moving to the wide range in quoted yields, the rub here is that there are two aspects to its quarterly distributions. Chesapeake began paying a base quarterly dividend of $0.34375 a share in the springtime of last year, bumping that rate to $0.4375 in the fall. Its current rate over four quarters translates to the 2.2% quote.
However, with energy prices booming, Chesapeake also recently introduced a variable distribution every three months. It declared a variable dividend of $1.33 a share that it paid out earlier this month. Add that to the mix of what it has paid over the past year and you arrive at the 3.6% yield. The variable rate naturally will fluctuate as its profitability rises and falls, but if it's able to duplicate this month's quarterly base and variable dividend over the next three months, you arrive at the 8.8% yield. With energy prices likely to remain buoyant for the time being this should play out as a high-yielding dividend stock that defies some of the current quote services.
3. Zim Integrated Shipping Services
Let's close with an Israeli provider of container shipping services. If you saw Zim's stock open sharply lower on Tuesday after its close just above $88 on Monday it's because the shares went ex-dividend on a special distribution of $17 a share. It's too late to get in on that healthy chunk of change, but there are still a lot of disbursements to collect in the next 12 months.
There's heavy demand for shipping goods overseas these days, and Zim is coasting along the favorable momentum that is affording it and its peers the ability to charge hefty freight rates. Revenue and earnings soared 155% and 366%, respectively, in its latest quarter.
Late last year Zim decided to share the wealth with its shareholders through a variable dividend policy. It pays 20% of its net income quarterly and another 30% to 50% annually in the form of a special dividend (like the one it just went ex-dividend on this week). Its quarterly rate is impressive, and like Camping World it also pushed out a 25% increase by going from $2 to $2.50 a share. If it's able to stick to its current rate -- not a guarantee since this is a variable quarterly rate -- we're looking at a 12.9% yield. If it earns enough to come anywhere close to this week's $17 annual dividend we're talking about a yield approaching 35% over the five payouts in the next four quarters.
There's no free lunch, and with Zim you have the cyclical nature of transportation stocks. It will be difficult to duplicate the circumstances behind the past year's explosive profitability, and Zim is also investing in expanding its fleet. It's still impressive for a company that went public at $15 just 14 months ago and has already declared more than that in trailing distributions.
