3 High-Yield Stocks With A Decade Of Dividend Growth

Jimmy Butts's picture

Wednesday, June 26, 2019 - 12:00am

by Jimmy Butts

More than usual, the markets have been very sensitive as to what the Federal Open Market Committee (FOMC) will do in terms of interest rates. Analysts and investors alike hang on every word and action that the FOMC makes. 

Will they increase rates? And if so by how much? Or will economic data and market sensitivity cause them to once again cut rates? These are the questions at the top of investors' minds. 

We've enjoyed a decade of low interest rates, which has arguably provided a boost to the stock market as well as helped millions lock in record-low mortgage rates. 

But it has come at a cost...


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Interest earned in savings accounts, money market accounts, Certificates of Deposit (CDs), and Treasury Bills and Notes is pitiful. A recent 10-Year Treasury note auction had an interest rate of 2.38%. That means over the next 10 years you would earn a tiny sum of interest. An amount that likely won't even keep up with inflation. 

This low-interest rate environment has wreaked havoc on savers. Investors have gone "yield chasing," looking for a better return on their money. Even the highly speculative junk-bond market doesn't truly pay investors for the risks they are taking.

Many of you might recall that even bank stocks were once favorites for higher dividend yields. For instance, Bank of America (NYSE: BAC) -- a former holding in my Top Stock Advisor newsletter -- yielded an average of 4% in the decade leading up to the financial crisis in 2008. Today, it yields just 2.1%, on par with what the S&P 500 delivers.

But just because it's a tougher environment for dividend hunters doesn't mean we should give up entirely. There is still a plethora of stocks that have a history of dividend growth and payouts. In fact, my colleague Nathan Slaughter heads up not one, but two premium newsletters devoted to income investing.

There's even a select group of stocks within the S&P 500 that have grown their dividends consistently, every year, for at least 25 consecutive years. These elite stocks are known as "Dividend Aristocrats," and you can invest in them through the ProShares S&P 500 Dividend Aristocrats ETF (AMEX: NOBL). Yet, the average dividend yield of this elite group is just 2.7%. 

Let's Hunt For Long-Term High-Yield Stocks
I wanted to dive a little deeper into dividend-paying stocks to see what we might have to choose from amongh higher-yield stocks with long-term dividend growth. After all, we can't let Nathan and his subscribers over at High-Yield Investing have all the fun. 

Ideally, I wanted stocks that have consistently grown their dividend over the last decade and yielded north of 5%. But only one stock made the cut -- PetMed Express (Nasdaq: PETS). So I changed my screen to capture stocks that yielded more than 4%, which is nearly double what the S&P 500 offers. 

Just three stocks made the cut...

TS stock screen

UFS logo1. Domtar Corp. (NYSE: UFS) designs, manufactures, markets and distributes a wide range of paper products. Its business is divided into two main categories: pulp and paper, and personal care. It partners with major brands as well as distributes products under its own brand. 

Last year the company did $5.5 billion in sales and generated $283 million in net income. It generated $359 million in free cash flow and dished out $108 million in dividends. The stock yields 4.2% and the firm has grown its dividend at a double-digit clip over the last five years.

KEY logo2. KeyCorp (NYSE: KEY), founded in 1958 and headquartered in Cleveland, is a regional bank that serves individuals and small to mid-sized businesses by offering a variety of deposit, investment, lending and home equity, credit card and personalized wealth management products across 1,100 branch locations. In 2018, the bank had revenue of nearly $6.4 billion, net income of more than $1.8 billion, and $36.7 billion in assets under management. It produced over $2.4 billion in free cash flow and dished out $656 million in dividends last year. Its average dividend growth rate was nearly 50% over the last year and 21% over the last five years. The stock currently yields 4%, nearly double what the S&P 500 offers.

PETS logo​3. PetMed Express (Nasdaq: PETS), founded in 1996 and headquartered in Delray Beach, Florida, sells prescription and non-prescription pet medications, health products and supplies for dogs and cats. 

In 2018, the company pulled in $281 million in sales, and net income of $41.3 million, or $1.84 per share. Free cash flow for 2018 was $33.6 million, which means the company has plenty of money left over to pay down debt or return to shareholders in the form of dividends and share buybacks. PetMed has used that cash to reward shareholders. In the last year alone, the company has paid out more than $21.4 million in dividends and increased its dividend by nearly 25%. Currently, the stock yields 6.9%. 

Action To Take 
Keep in mind that the investing ideas I present here are intended to provide a starting point for further research, not a final recommendation. That being said, I'm rather surprised that we're only left with three stocks to choose from, given the simple criteria. But it just goes to underscore what investors are up against if they're looking for income in this market.

Out of the group, PetMed looks interesting... It likely flies under the radar when it comes to dividend-seeking investors, mainly because of its size. The company's market capitalization is only $325 million. And the high dividend yield stems from a slide in share price. But the company is solid in terms of its finances. It sports good margins (profit margin of 18.4%), has over $100 million in cash and zero debt, and its payout ratio is 57.6%, meaning the company's dividend is sustainable. 

If you're looking for more income ideas, then I suggest you give High-Yield Investing a try. Nathan and his team have been able to find market-beating yields of 6%, 7%, 9% and even higher -- while also earning big time capital gains in the process. If you'd like to learn more about what they're up to right now, simply go here.

Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.