Inflation is at its highest point in 40 years. In times like these, dividends become even more important to investors. According to an analysis by Standard & Poor's, dividends have accounted for 32% of the total return of the S&P 500 since 1926.
More specifically, a report by Fidelity Investments zeroes in on how much more critical dividends are when inflation is up. In the 1970s, when inflation was high, dividends accounted for 71% of the total return of the S&P 500. In contrast, they accounted for just 11% of total return in the bull market run of the 2010s. So, if your portfolio is lacking dividend stocks, this might be a good time to consider adding some for diversification. Here are two good ones to consider that pay yields of more than 5%.
Image source: Getty Images.
1. Moelis: 5.19% dividend yield
Moelis & Co. (MC 2.59%) is a New York City-based investment bank that is coming off back-to-back strong years, which has allowed it to accumulate a lot of cash. Moelis generated then-record revenue of $943 million and net income of $218 million in 2020 thanks to a near-record year in merger and acquisition (M&A) deals.
In 2021, Moelis surpassed those highs with $1.5 billion in revenue and net income of $423 million. As a result, the stock price jumped 63% in 2020 and 49% in 2021.
The stock price has dropped about 40% since November and is down about 22% year to date. But Moelis is steeled by a ton of cash, about $520 million, up around 157% from the previous year. Its operating margin, while down from last year, is still a robust 32%, which means it is generating 32% profit on every dollar of sales earned after expenses. Lots of cash and solid margins are great indicators that the company should be able to continue to fund and boost its dividend. It's also good news that M&A activity is expected to be strong once again in 2022.
Moelis has an extremely high dividend yield of 5.19%. When you consider that the average yield of stocks on the S&P 500 is hovering around 1.3%, that's pretty good. The yield is the percentage of the share price that goes to dividends. Moelis also has a pretty low payout ratio of 43.5% -- which indicates that the company is not paying out too much in dividends at the expense of other investments. Sometimes you'll see a stock with a high yield but also a high payout ratio -- and that is a red flag that needs to be examined.
Moelis pays out a quarterly dividend of $0.60 per share, up from $0.55 a year ago. But it also rewarded investors with two special dividends last year of $2.50 per share and $2 per share due to its strong cash position. It is Moelis' fourth special dividend paid out in the last two years, and it's part of leadership's commitment to return excess capital to shareholders.
2. Camping World: 8.64% dividend yield
Camping World Holdings (CWH 0.22%) is the largest seller of recreational vehicles (RVs) in the nation with some 187 retail locations in 40 different states. Camping World has been remarkably consistent since it went public in 2016, expanding market share with annual revenue increasing more than 15% per year since it went public.
While traditional car sales have struggled the past two years, Camping World has had good results, as more people found it safer and more accessible to travel by RV during the pandemic. In 2021, revenue spiked 21% to $6.9 billion, due to both rising sales as well as higher retail prices. Net income jumped 86% to $642 million for the year. The gross margin -- net sales minus cost of goods sold -- jumped 427 basis points for the year to 35.5%. Cash and cash equivalents went up 60.8% year over year in 2021 to $267 million.
It enabled Camping World to boost its quarterly dividend by 25% in March to $0.625 a share, up from $0.50. Camping World pays out a high yield of 8.64% with a payout ratio of just 12.7%. That comes out to $2.50 per share on an annual basis.
The outlook for RV sales looks to be pretty solid again in 2022, and analysts predict gains in revenue and earnings for Camping World. But there are variables, including inflation and macroeconomic issues, that could change expectations.
Still, Camping World is well-positioned to continue paying out that excellent dividend with its cash position, growing market share, and low valuation, as the stock is trading at just under five times earnings.
While the markets are volatile, inflation is up, and returns will be muted in general compared to the past few years, these two dividend stocks can help boost your total returns.
