High-Yield’s Are Still Easy To Find
One of the many sectors/industries/thesis I’ve been pursuing since the onset of COVID-19 is high-yield. In times of economic trouble, dividend yield is by far the safer play than growth. I don’t want to imply that all high-yield stocks are a buy, they aren’t, but I’m surprised that so many great high-yielding stocks haven’t been doing better. In fact, there are several high-yielding stocks that just released earnings proving their worth for today’s investors.
What I mean by high-yield are stocks that not only beat the broad-market average but by at least 100 basis points. The average S&P 500 (ASX: SPY) company is paying about 1.85% which means I want to see at least 2.85% if not higher. I also like to see dividend growth in my high-yield stocks, in all my dividend stocks to be honest about it, because dividend growth invariably leads to higher share prices over the long-term.
A Dividend King, To Be Sure
I always like to start my hunt for yield with the Dividend Kings and Dividend Aristocrats because they come with a certain assurance of dividend stability if not growth. Genuine Parts Company (NYSE: GPC), is a Dividend King with 63 years of consecutive increase to boast about. With shares trading near $90 it’s yielding close to 3.5% which makes it the second-highest yielding stock in today’s lineup. Regarding its business, Genuine Parts Company is uniquely positioned as an aftermarket and replacement parts company in a world increasingly dependent on older cars.
Genuine Parts Company reported a net decline in YOY revenues that missed the consensus. The good news is that adjusted earnings, minus costs related to COVID and divestiture/portfolio optimization, came in positive and $0.40 ahead of consensus. Looking forward, the company sees business improving on a sequential basis with little worry in terms of the balance sheet, capitalization, or cash flows. The next dividend increase is expected in two quarters.
Kraft-Heinz, Emerging From The Merging
Kraft-Heinz (NASDAQ: KHC) share prices were under pressure for years following the company’s merger but that is all changing. The company slashed its dividend about 2 years ago and since used the capital to pay down debt and improve the balance sheet. At the same time, KHC has been working hard to streamline operations and realized the benefits of the merger, benefits that have been enhanced by the COVID-19 pandemic. Kraft-Heinz, like all consumer staples companies, has seen a massive and sustained uptick in demand for its products. And it yields about 4.5% which makes it the highest-yielding stock on this list.
In Kraft’s 2Q report the company says revenue grew 3.7% despite the pandemic to beat consensus. Adjusted earnings of $0.80 beat by $.15 and are aided by product mix and widening margins. At the organic level, the company grew nearly 8% doubling the analyst’s expectations. Looking forward, next year isn’t expected to see much growth but that doesn’t matter because the dividend is safe and getting safer. The comps will be hard to beat because of this year’s pantry-loading trends but debt is dwindling fast, free-cash-flow is increasing, and coverage is improving.
Kellogg Breaking Out After Raising Guidance
Kellogg (NYSE: K) is the lowest yielding of the lot but it has what the others don’t. Solidly positive revenue growth, earnings growth, and outlook for growth. The 2nd quarter results were so strong, in fact, that Kellog raised it’s full-year guidance to a range above the consensus. The news has the stock breaking to a new high that could lead to significant gains over the next 6 to 12 months. Regarding the dividend, Kellog pays a mere 3.20% but has been increasing the distribution for 15 years. The 5-year CAGR isn’t impressive at 3.2% but the balance sheet is sound enough and results are improving so maybe the next increase will be bigger.
