Strong dividend stocks are popping up everywhere these days. Even in the places you’d least expect.
With Janet Yellen and the Fed still holding short-term interest rates near zero, dividend stocks are still the in thing on Wall Street these days. It seems everyone is getting in on the act.
According to FactSet, 425 of the 500 companies that comprise the S&P 500 now pay a dividend, higher than at any point since 1995. Those companies paid a combined $90.5 billion in dividends in the first quarter. Dividends per share have now increased by double digits for 13 consecutive quarters. At 31.9%, the dividend payout ratio (a ratio of dividends to earnings) is near its highest level since the recession.
Simply put, with money market accounts, certificates of deposit and U.S. Treasurys offering little to no yield, income investors are flocking to dividend stocks more than at any point in nearly two decades. Recognizing that movement, more companies are jumping into the dividend-paying pool.
As a result, generous dividend payers are turning up in some pretty unexpected places.
Utilities, financials and basic materials have long been the most common places to find dividends. Those sectors may not offer the greatest share price appreciation, but they make up for it with steady dividend growth and low volatility. Today, those traditional dividend strongholds have plenty of company. With 85% of all S&P 500 stocks paying a dividend, you can find yield just about anywhere.
Here are three strong dividend stocks in three decidedly nontraditional areas for income:
Cisco Systems (NASDAQ: CSCO)
Dividend Initiated: 2011
On Wall Street, technology is synonymous with growth, not safety. Or at least that used to be the case.
Tech is suddenly the fourth-highest-yielding sector, trailing only the three traditional dividend sectors. An increasing number of tech companies are joining the dividend fray. Cisco Systems is one of the latest to do so.
The largest manufacturer and provider of networking equipment initiated a dividend in March 2011. Since then, the quarterly payout has more than tripled. Cisco currently pays a dividend of 19 cents per share, more than three times the 6-cent-a-share quarterly dividend the company paid as recently as early 2012. The 3% yield trumps that of fellow blue-chip dividend payers in the tech sector, Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC) and Microsoft (NASDAQ: MSFT).
Given that many high-profile tech stocks still stubbornly refuse to pay a dividend – I’m talking to you, Google (NASDAQ: GOOG), Facebook (NASDAQ: FB) and Yahoo (NASDAQ: YHOO) – Cisco is the rare tech stock that offers a generous yield.
Ford (NYSE: F)
Dividend Initiated: 2012
No sector is growing its dividend payments more consistently than consumer discretionary.
The sector has been in the top three in dividends per share growth for four years running. Some of the most recognizable stocks in the sector, Ford and General Motors (NYSE: GM), recently re-initiated dividends after a recession-induced hiatus. With those two retail giants back in the fold, analysts think consumer discretionary dividend growth will reach 21% this year.
Both GM and Ford offer decent yield, with consistent dividend growth since re-initiating their payouts. In light of General Motors’ recent struggles, however – down 18.6% year to date – Ford is the safer income play right now.
Iron Mountain Inc. (NYSE: IRM)
Dividend Initiated: 2010
A year ago, Iron Mountain might not have been the smartest choice.
The storage and information-management company had a rough second half of 2013, with shares down 36% at one point. That kind of fall can make a yield look deceptively attractive. But the stock has bounced back, rising 16% in 2014. And the yield remains strong at 3.2%.
Though Iron Mountain hasn’t increased its dividend since 2012, the 930% earnings growth last quarter could mean another increase isn’t far off. With U.S. industrial production back on the rise in the wake of the recession, look for Iron Mountain and other industrials to benefit.
Like technology and retail, industrials have become unlikely fertile ground for rising dividends.
But that’s misleading. In this low-yield climate, it’s clear that all sectors have become ripe for dividend growth.
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