The Fed’s decision to keep interest rates near zero through 2015 has left a huge void in the income investing world. Fortunately, U.S. companies are trying to fill that void.
Corporate earnings have improved in recent years, and more U.S. companies have excess cash on their balance sheets than at any time since the recession. With CDs and money market accounts all but worthless, demand for dividend-paying stocks has rarely been higher. To appease the masses, many companies are using their excess cash to initiate or increase dividend payouts.
As a result, nontraditional dividend payers are suddenly becoming reliable sources of income.
Here are three surprising sectors that upped their dividend payouts in 2013:
The tech sector isn’t known for rewarding shareholders. The appeal of investing in technology companies is the potential to discover the next Apple (Nasdaq: AAPL) or Microsoft (Nasdaq: MSFT) – a cutting-edge innovator that becomes the next big thing on Wall Street. Dividends are associated with reliable, low-risk (read: “boring”) companies that have been in business for more than a century.
That’s quickly becoming an antiquated notion. Tech companies are flush with money, and many of them are using it to reward shareholders.
According to Morningstar, the 65 tech stocks in the S&P 500 have nearly doubled their annualized dividend payouts over the last two years to $52 billion from $28 billion. The list of tech companies that now offer a higher yield than the U.S. Treasury now includes the likes of Microsoft (3.1% yield), Intel (Nasdaq: INTC) (3.5% yield), and Cisco (Nasdaq: CSCO) (3% yield), to name a few.
Overall, the tech sector still trails the S&P in terms of its average yield. Given how fast tech companies are increasing those dividends, however, that could soon change.
Most banks cut their dividend payouts during the recession. Many of them are still struggling to regain their footing. Slowly but surely, however, U.S. banks are becoming healthier. For the first time since 2007, yields among bank stocks are back on the rise.
Wells Fargo (NYSE: WFC), for example, has tripled its quarterly dividend payout over the last three years. It currently yields 2.6%. JPMorgan (NYSE: JPM) offers the same yield.
U.S. Bancorp (NYSE: UBS), meanwhile, has increased its dividend every year since 2009, and currently offers a yield of 2.2%.
Other smaller, regional banks offer much higher yield. Those, however, can carry a bit more risk. But as the banking industry recovers, the opportunities for income investors should become more obvious.
The decline in gold prices has sent gold stocks on a downward spiral. But it hasn’t stopped gold mining companies from increasing their dividends.
Some of the most prominent gold miners have been upping their dividend payouts for years. Now that their share prices are so depressed, the increased dividends are making for attractive yields.
- The second-largest publicly traded gold miner, Goldcorp (NYSE: GG), offers a yield of 2.6% after more than tripling its dividend payments since 2010.
- The third-largest public gold miner, Newmont Mining (NYSE: NEM), offers a yield of 3.3% despite a dividend that has been all over the map. From 2010 to 2011, Newmont tripled its payout. Since then, Newmont’s dividend has been up and down, settling at 20 cents per share as of December.
- The fourth-largest gold miner, Yamana Gold (NYSE: AUY), offers a yield of 2.7% after increasing its dividend every year since 2010.
Gold had an awful year in 2013. Despite that, many gold stocks have continued to increase their dividends. For income investors, that’s one more reason to buy gold stocks while they’re cheap.
Bottom Line. The traditional income avenues are essentially closed off. Thus, to find yield, income investors must think outside the box. And that means turning over nontraditional stones such as tech stocks, banks and gold miners.
We don’t normally think of those as high-yielding income options. But these are abnormal times for income investors.
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