The ultimate dividend paying portfolio: Part II

In an environment of ultra-low interest rates and financial repression, companies that yield anything from 3 to 11%, particularly those that increase their payouts over time, are becoming increasingly attractive. This article examines the subject of dividends and presents the ultimate dividend paying portfolio.

The ultimate dividend paying portfolio

The dividend paying portfolio below has an average yield of 5.88% and is made up of 18 companies from various industries including energy, telecom services, and drug manufacture. The majority of the companies have low betas meaning that they are significantly less volatile than the S&P 500, and many are in industry sectors that are considered defensive.

Dividend paying portfolio: Pie chart (Click on the chart for a larger version)

Dividend paying portfolio: Pie chart (Click on the chart for a larger version)

Dividend paying portfolio: List of companies

Company name: Imperial Tobacco Group PLC

Exchange/ Ticker: LON:IMT

Industry: Tobacco Products

Yield: 4.56%

Operating Margin*: 9.75%

Beta: n/a

Why own it: Imperial Tobacco, whose brands include Davidoff, Gauloises Blondes and West, has recently set out plans to raise its dividend by at least 10% a year for the “medium term”. Nomura recently raise its price target to 2520p and has a projected yield of 5.14%. The company is also continuing to with a large share repurchase programme.

Company name: Dorchester Minerals LP

Exchange/ Ticker: NASDAQ:DMLP

Industry: Energy

Yield: 7.58%

Operating Margin*: 60.14%

Beta: 0.75

Why own it: Dorchester Minerals is master limited partnership (MPL) that invests in land and then sells the mineral and drilling rights in return for royalty payments. The royalties the company collects are based on the volume of oil and gas which is produced on its land. The company’s business model is both robust and highly profitable, which is why it is able to return so much money to shareholders. For more on Dorchester Minerals read 247Bull’s profile of the company here.

Company name: McDonald’s Corporation

Exchange/ Ticker: NYSE:MCD

Industry: Restaurants

Yield: 3.05%

Operating Margin*: 30.33%

Beta: 0.34

Why own it: McDonald’s, which is the world’s largest fast food chain, spent $2.6 billion on store openings and renovations in 2011, $2.9 billion in 2012 and plans to spend $3.2 billion in 2013. These investments are expected to help the company meet its long-term sales growth target of 3% to 5% and operating income growth of 6% to 7%. The company has also increased its dividend every year since it started paying a dividend in 1976.

Company name: Altria Group Inc

Exchange/ Ticker: NYSE:MO

Industry: Tobacco Products

Yield: 4.96%

Operating Margin*: 43.07%

Beta: 0.46

Why own it: Altria, which used to be Philip Morris, is one of the world’s largest tobacco corporations and also has a significant stake in one of the world’s largest brewing companies, SABMiller. The company has been increasing their annual dividends every year for at least the past 25 years, and over the past five years it has significantly outperformed the S&P 500.

Company name: National Grid plc

Exchange/ Ticker: LON:NG

Industry: Electric Utilities

Yield: 5.11%

Operating Margin*: 27.87%

Beta: n/a

Why own it: National Grid is an international electricity and gas company that delivers gas and electricity across the whole of Britain. The company also provides power to millions of people in the North Eastern United States. The company pays an excellent dividend, and it said recently that for the foreseeable future it will raise its dividend each year at least in line with the rate of retail price inflation (RPI).

Company name: AT&T Inc.

Exchange/ Ticker: NYSE:T

Industry: Telecom Services

Yield: 4.77%

Operating Margin*: 10.20%

Beta: 0.38

Why own it: AT&T is an American multinational telecommunications corporation and is the largest provider both of mobile and fixed telephony the United States.
The company has a low beta of just 0.38 and it has also increased its annual dividend every year for the past 29 years.

Company name: Intel Corporation

Exchange/ Ticker: NASDAQ:INTC

Industry: Semiconductor

Yield: 4.14%

Operating Margin*: 27.44%

Beta: 0.98

Why own it: Intel, the world’s largest chip maker, is a high-quality company with 10 consecutive years of positive free cash flow. The company has steady sales growth and a decent balance sheet, all of which allows it to pay a decent dividend. It also has a low P/E ratio of 10.

Company name: Verizon Communications Inc.

Exchange/ Ticker: NYSE:VZ

Industry: Telecom Services

Yield: 4.17

Operating Margin*: 12.04%

Beta: 0.34

Why own it: Verizon is an American broadband and telecommunications company which is both a component of the Dow Jones Industrial Average and one of this year’s Dogs of the Dow. The company has generated free cash flow of over $10 billion in each of the past three years and has continued to increase its market share. The company also has a low beta of 0.34.

Company name: Telstra Corporation Limited

Exchange/ Ticker: ASX:TLS

Industry: Wireless Communications

Yield: 6.13%

Operating Margin*: 25.54%

Beta: n/a

Why own it: Telstra is the largest telecommunications provider in Australia and provides telecommunications and information services to individuals, businesses, and governments and enterprises in Australia and internationally. Telstra is a mature company which has steadily raised its dividend since 2002.

Company name: Seadrill Ltd

Exchange/ Ticker: NYSE:SDRL

Industry: Oil & Gas Drilling & Exploration

Yield: 9.32%

Operating Margin*: 42.49%

Beta: 1.94

Why own it: Seadrill is a leading offshore deepwater drilling company which operates a versatile fleet of 75 drillships, and rigs for use in both shallow and ultra-deepwater. The company’s stock price is volatile, however it currently pays a quarterly dividend of $0.85 or $3.40 per year and in a resent presentation the company stated that this amount is sustainable and that they have no plans to reduced it for the foreseeable future.

Company name: Annaly Capital Management, Inc.

Exchange/ Ticker: NYSE:NLY

Industry: REIT

Yield: 11.34%

Operating Margin*: 89.16%

Beta: 0.15

Why own it: Annaly Capital Management is the largest mortgage REIT (Real Estate Investment Trust), listed on the New York Stock Exchange. The company owns, manages, and finances a portfolio of real estate related investments, and its wholly owned subsidiaries offer real estate, asset management and other financial services. As a REIT, Annaly Capital Management must disburse at least 95% of its earnings to its shareholders and it as a result the company yields an impressive 11.34%. It also has a very low beta of 0.15.

Company name: AstraZeneca plc

Exchange/ Ticker: LON:AZN

Industry: Drug Manufacturers

Yield: 5.45%

Operating Margin*: 34.70%

Beta: n/a

Why own it: AstraZeneca is the world’s fifth-largest pharmaceutical company and has operations in over 100 countries. The company has 71 projects in the clinical phase of development, with another 13 either approved, launched or filed. The company is about to go through a huge restructuring which should turn the company’s performance around. It also has a low P/E ratio of 10.

Company name: Golar LNG Partners LP

Exchange/ Ticker: NASDAQ:GMLP

Industry: Shipping

Yield: 6.1%

Operating Margin*: 49.49%

Beta: 1.91

Why own it: Golar is a shipping company that is dedicated to the transportation and storage of liquefied natural gas, a compressed form of natural gas that is easy to store and transport. The company is well placed to continue to benefit from the boom in LNG and has strong growth prospects. Although the stock price is volatile the company pays an impressive dividend of 6.1%.

Company name: NuStar Energy L.P.

Exchange/ Ticker: NYSE:NS

Industry: Oil & Gas Pipelines

Yield: 8.02%

Operating Margin*: 3.58%

Beta: 0.48

Why own it: NuStar Energy operates 9,113 miles (14,666 km) of pipeline and 85 terminal facilities across six countries allowing for the storage of almost 80 million barrels of oil. As a result NuStar is the second largest independent liquids terminal operator in the world. The company has a long history of paying dividends, however it has not increased its payout for two years. The company also pays an excellent dividend of 8.02% and has a low beta.

Company name: Canadian Oil Sands Ltd

Exchange/ Ticker: TSE:COS

Industry: Oil Sands

Yield: 6.87%

Operating Margin*: 35.46%

Beta: 0.87

Why own it: Canadian Oil Sands Limited is a Canadian company that generates income from oil sands. The company’s joint venture partner operates an oil sands facility and produces crude oil through the mining of oil sands from ore deposits in the Athabasca region of northern Alberta, Canada. As of January 2, 2007, the company holds a 36.74% interest in Syncrude, which is the largest stake of any of the joint owners. The company has a decent operating margin that allows it to pay an excellent dividend of 6.87%. It also has a low P/E ratio of 10.

Company name: Kinder Morgan Energy Partners LP

Exchange/ Ticker: NYSE:KMP

Industry: Oil & Gas Pipelines

Yield: 5.69%

Operating Margin*: 27.08%

Beta: 0.55

Why own it: Kinder Morgan Energy Partners is a master limited partnership which owns or operates petroleum product and natural gas pipelines as well as storage facilities, power plants and retail natural gas facilities in the United States and Canada. The company is well placed to benefit from an increase in the demand for natural gas, and in Q4 2012 it posted revenue growth of 30% year-over-year.

Company name: BP plc

Exchange/ Ticker: LON:BP

Industry: Integrated Oil & Gas

Yield: 4.79%

Operating Margin*: 3.56%

Beta: n/a

Why own it: BP is a multinational oil and gas company which operates in all areas of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. It also has renewable energy activities in biofuels and wind power. The company’s dividend payouts were interrupted in Q1 2010 due to the Deepwater Horizon oil spill in the Gulf of Mexico, however they resumed in Q4. The company looks to have recovered from the disaster and represents a solid long-term investment.

Company name: Raytheon Company

Exchange/ Ticker: NYSE:RTN

Industry: Aerospace/Defense

Yield: 3.76%

Operating Margin*: 12.19%

Beta: 0.69

Why own it: Raytheon is a major American defence contractor and industrial corporation with core manufacturing concentrations in weapons and military and commercial electronics. The company provides portfolio diversification and represents a stable long-term investment. The company has also increased its dividend every year since 2005 and has a low P/E ratio of 10.

*The figures shows are trailing twelve months (TTM).

  1. The Germans have really taken off when it comes to renewable fuel sources, and have become one of the major players in the alternative energy game. Under the aegis of the nation’s electricity feed laws, the German people set a world record in 2006 by investing over $10 billion (US) in research, development, and implementation of wind turbines, biogas power plants, and solar collection cells. Germany’s “feed laws” permit the German homeowners to connect to an electrical grid through some source of renewable energy and then sell back to the power company any excess energy produced at retail prices.’

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