They are not the types of names you see people bragging about owning. The fact is, dividend stocks are the workhorses for investors, more so than you may suspect — even if their top use is only to create cash used to buy growth companies.
With that in mind, if you are wanting to increase your total exposure to dividend companies — here are two great companies that have turned into even more attractive bets in just the previous few weeks.
Yes, the same IBM that was once a tech titan but has faded into a backdrop of irrelevancy is returning! Indeed, things have changed for the company. Now the company’s focus is on things such as cloud computing, AI, and mobility, while legacy products like mainframes and PCs are somewhat of an afterthought.
The new IBM works. The revenue decline that has been happening since 2012 has actually began to level off — only suffering lately due to COVID-19 — en route to good sustained growth. The same is true for profits. Analysts collectively believe the company’s top-line growth will be around 1% this year and next to push per-share earnings growth of 25% and 10%.
The key to the good disparity is the changing business income mix.
IBM is moving away from a small focus on hardware and software packaged with services, which typically have higher profit margins. There is even more to this story, however. As CFO Jim Kavanaugh recently went over the company’s 2019 purchase of Red Hat “for every $1 of business we get on the hybrid cloud we get $3 to $5 of software drag and $6 to $8 dollars of services.” This recurring revenue helps to fund recurring dividend payments — which is this case here, giving a yield of 4.6%.
2. Southern Company
Most dividend stock lists usually include a utility firm. This one is no exception. Looking at the Southern Company, which even with a 24% stock-price gain for the previous year still has a trailing yield of just below 4%. That is a better payout than most utility companies.
Boring? You bet. But that is the point. you will never experience any serious stock-price expansion with the Southern Company. You will, however, enjoy income streams given with great reliability as customers don’t usually neglect their utility bills. This means monthly payments come in like clockwork.
There are also higher-yielding options, but Southern Company’s has something of a pedigree. It has not failed to make their quarterly dividend payments for over 70 years now, and it has increased its annual payout once a year for the previous 20 years. So it is reasonable to believe the company will do whatever it takes to keep their streak going.
Author: Blake Ambrose