Investing surprises can be good or bad.
The CEO negotiates a sale of the company at a 50% premium to the current market price is good. The CEO is arrested for falsifying financial statements and the share price drops 50% is bad.
Surprises are rarely so euphoric or Draconian. They’re mostly pleasant or irritating. Discovering that a value-priced dividend stock is a much better dividend payer than you expected would certainly be slotted into the former category.
Chalk up the pleasant surprise to reoccurring special dividends. These dividends are excluded from the stated dividend policy, but they occur with sufficient regularity that investors can factor them into the equation when calculating yield.
Such is the case with the following three value dividend stocks that yield far more than most investors realize.
For the past 10 years, Templeton Emerging Markets Income Fund (NYSE: TEI) has paid a quarterly dividend between $0.20 and $0.25 per share. Templeton trades just north of $13 a share, which generates a yield of around 6% on the stated dividend.
That’s not bad. But each year, Templeton supplements the stated dividend with a special dividend of roughly $0.40 a share. When the special dividend is factored in, the yield spikes to over 10%.
Templeton invests in sovereign debt and income-producing stocks in emerging markets – lead by Brazil, Hungary, Iraq, and Indonesia. These markets have fallen out of favor. Templeton is generally a low-volatility stock, but its shares are down 25% from a 2013 high of $18 a share. These emerging markets – won’t remain unpopular in perpetuity, and neither will Templeton’s value price.
Offshore oil drilling is another sector that draws disdainful sniffs these days. That’s good news for investors seeking high yield and value in oil production.
Diamond Offshore Drilling (NYSE: DO) is one of the larger and more-conservatively run offshore drillers. It owns a fleet of 45 offshore drilling rigs. Diamond is also controlled by the legendary Tisch family, which has long history of creating shareholder value.
Diamond’s stated quarterly dividend is $0.125 per share, but the stated quarterly dividend is supplemented by a special $0.75, which has been paid every quarter since 2010. This special dividend lifts Diamond’s yield to 7.6% – more than seven times the stated yield – at the going market price of $46.00 share.
Investors have become enamored with fracking technology, and have relegated the offshore drillers to wall flowers, even though these drillers remain an important cog in the energy-production machinery. Rejection presents an opportunity: To sell high you must first buy low. Diamond’s value price offers investors the opportunity to buy low and to capture exceptional high-yield income in the process.
National Presto (NYSE: NPK) is the most eclectic of the trio. It manufactures ammunition, pressure cookers, and adult diapers. It also manufactures a 7.6% dividend, thanks to its special dividend, which can be four to six times the stated $1.00 per share stated payout.
National Presto is a paragon of conservatism: It carries no long-term debt and sports an impressive 4.8 current ratio. In other words, National Presto will likely remain a rewarding special-dividend payer far into the future.
To be sure, National Presto hardly titillates investors with its growth prospects (after all, we’re talking pressure cookers), but it is a reliable cash-generating company that’s fallen out of favor: It trades at a 21% discount to its 52-week high, which means it trades at only 12.4 times earnings and 1.6 times book value.
So, there you have it: three value dividend stocks that offer the very pleasant surprise of more income.
Deepwater Drilling for Dividends
Discover a company that’s drilling into the largest oil reserve in the Western Hemisphere… deep under the Atlantic Ocean. With every barrel of crude oil that it unearths is adds to the massive dividends that it pays its savvy investors. This is the only company that has the high-tech rigs and the sole rights to drill the “Saudi Arabia of the Sea.” And the best thing is… It’s paying out bigger dividend than Exxon and BP. It’s highly profitable and rewards shareholders with unannounced “bonus” dividends. And it pays them out every quarter. That’s on top of its regular, scheduled dividends — meaning shareholders are collecting 8 dividend payments a year, all from this one investment. Click here for all the details — before the next ex-dividend date!