Buy a utility stock or a real estate investment trust, and you're likely to receive a fat quarterly dividend check. In fact, the yield may very well have won you over, because these sectors have been historical laggards in terms of capital appreciation alone.
If you want to stand out as a bank or an energy provider, just try not to pay out a good chunk of your profits to your shareholders. It happens -- and sometimes even successfully -- but not very often. On the flipside, you have companies in unlikely sectors with surprisingly huge yields. You wouldn't expect an Internet service provider or a wrestling specialist to be yielding 6.5%, yet both do exist.
I'm going to look at five companies that have initiated aggressive payout policies, serving niches where dividend payers are the exceptions to the norms. This doesn't mean that they're all worth snapping up. One could argue that they're cutting loose with so much of their greenery because they've stumbled as growth-stock stories. But as you'll soon see, the reality lies somewhere in between.
Back in the good ole' dot-com bubble days, a few companies like NetZero and Juno fashioned their business models around free ad-supported Internet access. It may not sound like a very savory notion today, but it was far worse back then when few sponsors had gravitated online. In the fall of 2001, just as many of the online companies that were heavy Web-based advertisers began to go out of business, a desperate NetZero and an equally desperate Juno hooked up to create United Online.
Since then, United Online has maintained its free limited-access accounts, but it's emphasizing low-priced access accounts without the sponsored shackles. The company also acquired the popular Classmates.com site for folks to catch up and network with other online users from their alma maters. The company's strategy has worked -- it's been consistently profitable since 2002.
The share price didn't really respond to the fundamental improvement, so in May of 2005, the company began paying a $0.20 per-share quarterly dividend. That finally won United Online a little market respect. The stock has soared 50% higher since it announced the new payout policy nearly 10 months ago. That doesn't include the extra $0.80 per share that shareholders have received over the past four quarters.
World Wrestling Entertainment
It was a sad day when the WWF became the WWE. We all knew that wrestling was bogus, yet there was an allure to renegade grapplers working hard to fool the starry-eyed kids watching ringside or from the comfort of their own homes. Then again, maybe the XFL was a bigger sham for WWE. That's one piece of fact that the McMahons may wish was fiction.
In the end, the WWE may have lost a step, but it hasn't really fallen that far behind. Just as The Rock has become a movie star and Stacy Keibler danced her heart out this season on ABC's hit Dancing with the Stars show, the company's legacy as an entertainer seems to be as powerful as when it was a federation.
Ratings for RAW, SmackDown, and pay-per-view and live events may have peaked, but we're living in a digital age. That's giving the company greater high-margin revenue streams, because people are still fascinated by the theatrics and athletic feats of chiseled wrestlers and scantily clad divas. In its October quarter, revenues rose by just 6%, but profits nearly tripled. The company began paying out a dividend just three years ago, but it has increased its payout quite dramatically over that time. In short, WWE isn't going down for the count without a pocket-change fight.
Data storage is a pretty cutthroat business. Whether you're making hard drives or memory products, it's often a commodity business, which finds most companies holding tight to their greenbacks. Not Dataram. Last spring, the company initiated a dividend policy. It is now paying investors $0.05 per share every three months.
The company has been consistently profitable over the past two years. That doesn't mean that the memory specialist would like to remember everything that has happened in that time. Fiscal 2005 saw sales and earnings take a dip. The company switched auditors back in October, but that didn't come with the usual red flag; it appears to be strictly an economical move. In a cyclical sector like this, the dividend checks -- if they continue -- will be refreshing through the ups and downs.
Amusement parks may be a great place to spend the day, but running them isn't exactly a stroll in the park. Capital expenditures can be intense, since guests need new reasons to keep coming back. By and large, the players in this sector are a pretty leveraged lot. Six Flags
Set up as a limited partnership, unitholders have enjoyed hefty distributions for years as the company liberally returns its profits. The company has hiked its payouts a dozen times over the past decade. As it stretches the operating calendar at many of its parks and erects on-site resorts, Cedar Fair even managed to win the eye of market guru Mathew Emmert, who singled out the units to Income Investor subscribers last year.
Mention high yields and Star Buffet in the same sentence, and you may very well be talking about an overeater going through a half-dozen plates at one of Star's many all-you-can-eat concepts. The operator of various regional chains such as HomeTown Buffet, JB's, and BuddyFreddys knows how much Americans love food in volume. It's only fitting that their dividend should go the smorgasbord route, too.
Star Buffet pays its distributions annually. It's $0.60 per share this year, up from $0.50 last year. The company has also tacked on an additional $0.25-per-share special payout in both years, so the stock's yield is closer to 10% when you account for the bonus kicker. Revenues have clocked in lower over the first three quarters of fiscal 2006, although earnings have climbed 53% higher in that time. It's a mixed bag, sure, but in a restaurant space where most chains aren't paying enough in dividends to cover items off their value menus, Star Buffet's 7% solution is pretty beefy.
Dividend checks don't bounce
Chasing yields, especially in uncommon areas like we just did, may be as easy as firing up your stock screener of choice and digging into some eclectic industries. I'm certainly not patting myself on the back. What I did was easy.
I'm no Mathew Emmert. He digs deeper into his recommendations to find more than just companies that are paying out generous dividends. He won't make them official selections until he's convinced that the company's fundamentals are sound. That's the best way to assure that they'll not only continue to pay their dividends, but grow them as well.
Metered mail doesn't seem like a glamorous business, but Emmert singled out Pitney Bowes
It would be pretty neat if you could tap into Emmert's noggin on a regular basis for fresh stock ideas -- and you can. That's what Income Investor subscribers do. If you're not a member of his newsletter service for high-yielding market winners, you can even try it on for size with a free trial subscription. From now through the end of March, you can absorb his latest recommendations and all of his archived discoveries without paying a dime. So be on the lookout for generous payouts in unexpected places, but don't dismiss the ones that are just one click away.
Longtime Fool contributor Rick Munarriz has been known to chase a yield sign now and then. He even owns units in Cedar Fair. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.