If you are not familiar with the Total Return Index, you should be. The Total Return Index differs from the S&P 500 that most people track in one simple way: It reinvests dividends.
This is a stark reminder of the importance of dividends, whether you reinvest them to grow your wealth or just use the cash for income. Either way, dividends allow you to generate cash flow throughout the year, and that cash flow is going to grow!
Cash now and more cash later!
According to S&P, the cash that companies are paying out is soaring:
I’ve got 3 stocks, with an average yield of 4.6%, all in the S&P 500 and all priced under $20!
Bargains that are paying handsomely now
The top yielder on my short list is Gannett Co., Inc. (GCI). This publishing company traded near $90 in 2004, but struggled with the transition from mostly print media to more digitally based revenue streams. Over the last three years the company has repaid over $2 billion in debt while generating $2.4 billion in free cash flow.
In February, Gannett’s CEO, Gracia Martore, announced that the company plans on returning $1.3 billion to shareholders over the next 3 years. To kick those plans off, the company jacked the dividend 150% to $.80 per share. With the stock trading around $15 per share, that amounts to a 5.3% annual yield. Additionally, a number of company directors have been accumulating stock in the open market. Four directors have purchased more than $550,000 in stock so far this year.
The second stock is People’s United Financial, Inc. (PBCT). This northeastern savings and loan trades around $13.25 and sports a yield of 4.75%. The payout per quarter has remained constant at $.1575 for each of the last 4 quarters, but the company usually announces an increase in conjunction with its Q1 earnings report. So it would not be a surprise to see the company up its quarterly payout to $.16 when it reports on April 19, bumping next year’s yield to 4.8%.
With PBCT earnings right around the corner, it strikes me as very positive to see president and CEO John Barnes plunking down about a hundred grand to buy 8,000 shares in an open market purchase in mid-March when the stock dipped down to its 200-day moving average. The stock also appears to be in the handle part of a “cup and handle” pattern.
The “cup” began in early January and ended in late March. It is now in the handle portion. This is generally regarded as a bullish continuation pattern. PBCT has been in a bullish trend since late August of last year, so once the handle completes, the next move should be higher.
Finally there is SAIC, Inc. (SAI). SAI provides engineering, systems and technical services to a number of defense and intelligence related U.S. government agencies, as well as foreign governments and commercial customers.
The company is well off last summer’s highs near $18, when one of the company’s project managers was accused of taking kickbacks from the City Time project. This was an automated payroll system for New York City and was rife with problems on nearly every level. The last of that settlement was resolved during the company’s Q4, which ended January 31, 2012.
The total loss surrounding the settlement was about $540 million. With that albatross off the company’s neck, SAI immediately initiated a $.12 quarterly dividend. The first will be paid to shareholders of record on April 15 and results in a 3.76% yield with the stock trading around $12.75.
With the settlement behind them, the company has the free cash flow to support the dividend and management can refocus on growing the business.
Not all dividend paying stocks are boring old utilities, nor are they all mega cap behemoths. There are plenty of great stocks within the S&P 500 that are bargains with nice yields.
These stocks are paying now and are likely to grow their dividends while having the potential for price appreciation.
Price Shock Trader