Markets have been a bit dreary this month, but I'm hopeful the S&P finds its feet soon. And if it does, investors will want to have used the recent market slide to buy best-in-breed companies for portfolios.
Since long-term investing has been proven time and time again to outperform short-term trading, and dividend stocks have historically been better performers than their non-dividend paying peers, let's look at three top-tier dividend-paying companies that may reward investors into year end.
Source: Travelers.
1. The Travelers Companies, Inc. (TRV 0.26%) is one of the nation's biggest insurers, but it's also been one of the most solid bets in the industry. While competitors struggled during the recession, solid underwriting helped Travelers' book value and return on equity remain solid.
Since the great recession was arguably this generation's biggest test of financial companies, including insurers, Travelers weather-the-storm stability deserves a premium, so its shares aren't as cheap as those of some of its peers. But rebounding construction activity and employment should continue to support policy writing and premium pricing, which could mean plenty of shareholder-friendly cash flow to support its dividend.
With a rock-solid balance sheet and a solid dividend yield of 2.3%, it's probably not surprising that Travelers makes this list, but what may be more surprising is that Travelers tends to be a solid performer for long-term investors during the fourth quarter. Over the past 10 years, the company's shares have finished December higher than they began October every year, including 2008. Travelers has returned a median 7.44% over the period during the quarter, so now might be a good time for investors to consider adding it to their portfolios.
2. Blackrock (BLK -0.68%) is a mammoth money manager with $4.5 trillion (yes trillion, not billion) under management. Despite Blackrock collecting a small fee on those assets, its revenue eclipsed $2.8 billion in the third quarter, allowing it to produce $890 million in net income. That's impressive, but more impressive is Blackrock's 34% year-over-year jump in third-quarter earnings per share.
Admittedly, an investment manager's success or failure is tied to market performance, but Blackrock is pretty diversified between equities ($2.4 trillion) and fixed income ($1.3 trillion) and it also captures revenue from multi-asset and alternative products, too. That may suggest that in a troubling tape, its business holds up better than equity-only peers.
BLK Revenue (TTM) data by YCharts.
Blackrock's size stems in part from its being a savvy dealmaker. In the teeth of the financial crisis in 2009, it bought the highly successful iShares ETF business from struggling Barclays for stock and $6.6 billion in cash. With iShares AUM totaling nearly $975 billion last quarter, up from $857 billion exiting 2013, and nine-month iShares revenue of more than $2.3 billion, that appears to have been money well spent.
Although Blackrock hasn't been as solid a performer as Travelers into year end -- gaining ground in nine of the past 10 Q4s -- its posted a more than respectable 14.7% median return during the period. Given Blackrock is a Goliath in its industry and pays a 2.5% dividend yield, now might prove the right time to pick up some shares.
3. UnitedHealth Group's (UNH 1.35%) sales and EPS grew 7% year over year in the third quarter, led by a 34% jump in Medicaid revenue from a year ago. But even better times may be ahead given that the second open enrollment period for the Affordable Care Act health insurance exchanges kicks off in November, and UnitedHealth expects to be a much larger player this year than it was last year.
During the first open enrollment, UnitedHealth offered plans in just four states, but this year, it plans to offer plans in 23 states. That should go a long way toward overcoming the one hiccup in UnitedHealth's third-quarter results: slumping individual and employer membership. As employers have cut coverage for some, membership has shifted toward the exchanges, so UnitedHealth's participation in more of them should allow it to win those members back.
In addition to a large individual and employer business, UnitedHealth is also a major player in Medicare and state Medicaid programs. Since baby boomers are turning 65 at a pace of nearly 10,000 per day, and more states are embracing Medicaid expansion, UnitedHealth's revenue should climb again next year, too. Heading into year end (during fourth quarter), investors have typically been fans of UnitedHealth, pushing its shares up in eight of the past 10 years for a median return of 9.74%. So, with industry-leading membership likely to continue growing and a dividend yield of 1.8%, there's a lot for long-term investors to like about UnitedHealth shares.
