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3 Stocks to Buy With Dividends Yielding More Than 4%

By Demitri Kalogeropoulos - Apr 9, 2016 at 9:03PM

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Investors don't have to give up on growth in exchange for above-average dividends.

Investors who buy a broad index fund right now -- for example, the Vanguard Total Stock Market Fund -- will earn a dividend yield that's very close to the overall market's 2%. While that's far better than you could do with money market funds or bank deposits, it's not a particularly exciting payout.

The good news is that there are plenty of stocks yielding double that annual rate, and even if a market-thumping yield often involves some trade-offs, income investors don't have to give up profit or sales growth potential to achieve a 4% dividend yield.

With that in mind, here are three growing businesses with hefty dividend payouts that you might consider adding to your watchlist: Garmin (GRMN -2.40%), Mattel (MAT -6.25%), and GameStop (GME -7.26%).

Dividend comparison:

 

Garmin

Mattel

GameStop

Dividend yield

5.2%

4.5%

4.8%

Payout ratio

84%

140%

38%

Last year's raise

6%

0%

3%

Source: Company financial filings and S&P Global Market Intelligence.

Garmin
Garmin's substantial yield is available even though its stock is on the upswing lately. Shares have risen 7% so far this year because of surprisingly strong holiday-quarter results out of the GPS device maker.

Source: Garmin.

Yes, its auto division is contracting as smartphones replace dedicated car navigation devices. But Garmin made up for that slump with help from surging demand for fitness GPS technology. Even better news for investors is that its profit margin, at 55%, soundly beats wearables specialist Fitbit's (FIT) 49%, demonstrating the advantage of having a more diverse product lineup.

Garmin expects to earn $2.25 per share this year on a minor sales uptick, and it's promising to deliver nearly all of those earnings, or $2.04 per share, as dividends paid out to shareholders.

Mattel
Toy giant Mattel is trailing rival Hasbro in sales and profit growth, but its yield is nearly double its competitor's.

Mattel returned to sales gains last year with help from a Barbie business that ticked higher after plummeting by double digits in 2014. "We achieved our goal of stabilizing the business," CEO Chris Sinclair told investors in describing the solid holiday-quarter results.

A major red flag for income investors is that despite no boost to the dividend in 2015, the payout still swamped earnings: Mattel paid $1.52 per share in dividends while only earning net income of $1.08 per share.

Sales growth for 2016 will also be under pressure from the loss of the Disney Princess product line to Hasbro. Yet Mattel's turnaround appears to be gaining steam, and aggressive investors why buy now can hope to secure an unusually large income yield while owning a portfolio of global toy brands, including Fisher-Price, Barbie, and American Girl.

GameStop
GameStop's core video game business declined over the past year, as the company sold fewer gaming devices and endured a drop in demand for both used and new software titles. However, its mobile and consumer electronics division spiked 26% higher and now represents 7% of its business -- up from 3% just two years ago. GameStop also rolled out a successful new sales initiative around collectibles merchandise that's become a significant engine for growth.

Source: GameStop.

Those wins offset weakness in the video game division to power record net income for the retailer last year. They also helped it generate an impressive boost in profitability to 4.3% of sales from 4.2% the prior year and 3.9% in fiscal 2013.

GameStop's core business, especially its lucrative trade-in model, doesn't have a bright outlook as gamers continue to move their spending to digital downloads. However, the company has demonstrated that it can boost both revenue and profits even in that challenging environment. Meanwhile, its $1.44-per-share annual dividend payment should be amply covered by the $4 per share in profit that Wall Street sees GameStop earning this year.

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Stocks Mentioned

Mattel, Inc. Stock Quote
Mattel, Inc.
MAT
$21.62 (-6.25%) $-1.44
Garmin Ltd. Stock Quote
Garmin Ltd.
GRMN
$98.94 (-2.40%) $-2.43
GameStop Corp. Stock Quote
GameStop Corp.
GME
$89.15 (-7.26%) $-6.98
Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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