It can be scary when strong dividend-paying stocks lose value, but it can also be an opportunity for investors to buy their stocks for sale. Not only is there hope that they will recover, but it also gives investors the opportunity to buy them while their yield is higher, and it will cost less to receive the same dividend.
Scotts Miracle Gro (NYSE: SMG), Village supermarket (NASDAQ: VLGEA), and AT&T (NYSE: T) have all declined this year. And they all pay better than the 1.3% return you might expect from the average stock in the S&P 500.
1. Scotts Miracle Gro
Scotts has the lowest return on this list, but even at 1.8% it is still above average. Plus, that doesn’t mean investors can’t earn more – last year Scotts paid a special dividend of $ 5 per share. Paying a special dividend is a good way to reward shareholders without creating the expectation that a higher payout will be the norm; it gives the company flexibility in its cash flow while showing shareholders that the company is ready to share its wealth.
One of the main reasons this lawn and garden business is doing so well and could afford to pay a special dividend is due to the rapid growth of the cannabis industry. Scotts hydroponics company Hawthorne helps cannabis growers grow their crops more efficiently by using specialized water pipes and pumps rather than a complex operation involving massive greenhouses.
For the nine-month period ending July 3, Scotts’ revenue of $ 4.2 billion was up 29% year-over-year. And while its gardening business (which falls under its consumer segment in the United States) grew 19% year-on-year to $ 2.8 billion, it was Hawthorne that delivered impressive results with its figure. sales of $ 1.1 billion, up 60% from the previous year’s sales.
With results like these and other states that have enacted marijuana reform in the past year (including New York and New Jersey, which have legalized recreational pot), the growth of the business will remain. likely strong for the foreseeable future. While Scotts does not declare a special dividend in 2021, it is an investment worth holding for the long term, both for its dividend and for the growth opportunities in the cannabis industry. And with its stocks down 26% this year as the S&P 500 climbed 16%, buying Scotts Miracle-Gro today could look like a genius move a year from now.
2. Village supermarket
Village Super Market is not going to generate the growth numbers you see from Scotts. But this dividend stock is excellent in terms of consistency, which will appeal to income investors. Its margins below 1% aren’t great, but that’s not unusual in a competitive grocery environment. And the diluted earnings per share of $ 1.35 it has reported over the past four quarters is enough to support its dividend, which on an annual basis pays shareholders $ 1 per share.
Village Super Market shares have only fallen 2% this year, but that is nothing compared to the returns of the S&P 500. Investors just aren’t in love with a company that doesn’t perform well. year-over-year numbers, especially at a time when many businesses are booming due to the pandemic.
But the business has grown; in its most recent period, for the quarter ending April 24, sales of $ 481 million were up 5% year-on-year. Village Super Market attributed the growth primarily to the acquisition of assets (including five supermarkets) last year of the Fairway grocery chain through a bankruptcy auction. The move expanded Village Super Market’s presence on the east coast. Currently, the company has more than two dozen stores in New Jersey and nine more in New York. It also has operations in Pennsylvania and Maryland, with one store each in each of those states.
The grocery store is not going anywhere. That is why, for income investors, Village Super Market and its 4.6% return can be a mainstay of the portfolio for years to come.
Now that the company is abandoning WarnerMedia, telecommunications giant AT&T is in the midst of a transition that will form a new entity with the entertainment company. Discovery. While this move has garnered good reviews, it is arguably a good move for income investors. Trying to pay a stable dividend while pursuing growth opportunities in a hotly contested streaming market, where competitors like Netflix and Walt disney will spend aggressively to deliver content, probably wasn’t going to work in the long run.
While it looked like AT&T was going to try to balance the two, focusing solely on telecoms and moving away from streaming is a win for dividend investors, as it will likely alleviate concerns about the company’s dividend. . In the end, AT&T shareholders will get a good balance: they will receive shares that make up 71% of the new entity, which will give them exposure to a new streaming business, plus they will end up with an investment. in AT&T which will revert to being primarily a solid income stock.
The yield is unlikely to be as high as it is now (at 7.5%), but the company maintains it will aim for a 40-43% payout based on free cash flow. At the very least, it will make the yield sustainable over the long term. In the past five years, AT&T hasn’t paid a return below 4%, so it’s likely that once this deal is completed (which probably won’t be until the middle of next year), it will pay always to investors an above average dividend.
AT&T shares are down 6% this year. The drop represents a good opportunity to buy the stock, especially if you also want to add some of AT & T’s new business to your portfolio.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.