Financial Adviser: 5 Dividend Stocks You Can Buy That Pay as Much as 12.4% Every Year
The recent fall of the stock market amid the spread of the coronavirus pandemic has made investing in dividend stocks attractive.
What are dividend stocks
Dividend stocks are companies that pay out a portion of their earnings regularly to their shareholders. They are usually mature and stable companies with a good track record of paying dividends.
Paying dividends is a sign of a company’s strength. It indicates that management is confident of the company’s growth to generate a steady stream of earnings in the future.
The dividend yield of a stock is determined by dividing the cash dividend over its market price so that when a stock price falls, the dividend yield goes up.
In a rising stock market where earnings are expected to increase, it is normal to anticipate for dividend payments to also go up, therefore, buying the stock at a higher price will result to lower dividend yield.
But during this time of crisis when stock prices are lower because of the expected slowdown in earnings growth, there are also opportunities to look for cash-rich stocks that pay high dividend yields.
The lack of investment opportunities brought about by the pandemic last year encouraged many listed companies to return excess cash by way of dividends to investors.
There were 111 companies that paid dividends in 2021, up by 4.7 percent from 106 companies in 2020. The median dividend yield was also higher in 2021 at 2.5 percent compared to 2.4 percent the previous year.
While there are many stocks that may currently be trading at high dividend yield, bear in mind that buying dividend stocks should not be based blindly on the yield itself.
We need to assess the chances that the company will continue to pay the same dividend next year. How much was the dividend growth in the past five years? What are the chances that a company will survive and recover from this crisis?
Knowing the fundamentals of the stocks before you invest can help you lower your risks. Here are the top five dividend-paying stocks in the market that you may find worth exploring for value investing:
1| Semirara Mining and Power Corporation
Price: P24.25 Yield: 12.4 percent
Semirara Mining and Power Corporation (PSE: SCC) is the largest coal producer in the Philippines, and the only power producer in the country that owns and mines its own fuel source (coal).
SCC operate the largest and most modern pit mine in the Philippines, with operating capacity of 16 million metric tons of coal per year. SCC also installed generating capacity of 900 MW, with an additional 1,200 MW in the pipeline.
SCC’s revenues, which is comprised of 65 percent coal sales and 35 percent power revenues, have been growing by an average of eight percent per year since 2010, from P22.8 billion to P44.2 billion in 2019.
This increase in revenues has resulted to annual growth of 10 percent in net income—from P3.9 billion in 2010 to P9.6 billion in 2019.
During the 2020 pandemic, SCC’s total revenues fell by 36.2 percent to P28.2 billion due to lower sales volume and imposition of coal import quota in China.
The fall in revenues resulted to a 66-percent loss from its net income of P9.6 billion in 2019 to only P3.3 billion in 2020.
Last year, SCC’s nine-month revenues for 2021 recovered by 91 percent to P38 billion from P19.8 billion in the same period last year, as global supply disruptions and looming energy crunch in China, India, and Europe pushed coal prices to an all-time high.
The strong recovery in revenues increased SCC’s net income by more than three times, from P3.06 billion in 2020 to P10.3 billion. SCC will most likely end the year with P12.1 billion net income.
Last year, SCC paid an extra cash dividend of P1.75 per share, on top of its regular annual dividend of P1.25 per share for a total cash pay-out of P3.00 per share, which translates to total dividend yield of 12.4 percent.
Although the stock price has already gone up from its low of P20.60 per share, SCC is only trading at 8.6 times Price-to-Earnings (PE) ratio based on 2021 earnings.
Assuming SCC goes back to paying dividend of P1.25 per share this year, projected dividend yield at current price will still be relatively high at 5.2 percent.
Given the recovery in the economy, sales volume of coal and power at the elevated high prices should enable SCC’s net income to grow further this year.
2| DMCI Holdings, Inc
Price: P8.31 Yield: 11.6 percent
DMCI Holdings, Inc. (PSE:DMC) is one of the largest conglomerates in the country with interests in power, construction, property development and water distribution.
DMC’s 56.6 percent-owned, listed-company Semirara Mining and Power Corp (PSE:SCC) contributes about 50 percent of the company’s total net income.
DMC’s wholly owned subsidiary, DMCI Property Developers, shares about 20 percent while DMC’s 25 percent interest in Maynilad Water Holdings provides about 16 percent, making up a total of 86 percent.
Interestingly, DMC’s construction company, D.M Consunji, Inc, whose engineering expertise the company was originally known for, contributes only less than 10 percent.
The fall in SCC’s revenues during the pandemic dragged down DMC’s total revenues in 2020 to P67.7 billion in 2020 from P87.7 billion in 2019.
This wiped-out DMC’s net income in 2019 of P10.5 billion by 44 percent to P5.9 billion in 2020.
But last year, the recovery in SCC more almost doubled DMC’s 9-month total revenues from P43.9 billion in 2020 to P80 billion, which more than tripled its total net income to P13.5 billion in 2021 from P3.9 billion in the same period last year.
The strong recovery in DMC’s net income last year prompted management to double its cash dividend payment from P0.48 per share in 2020 to P0.96 per share.
This gives DMC’s dividend yield of 11.6 percent at current share price.
Let’s say DMC goes back to paying regular cash dividend of P0.48 per share this year, the stock will still have relatively high dividend yield of 5.8 percent.
Also, DMC is only trading at 7.2 times Price-to-Earnings (PE) ratio against its projected 2021 net income of P15 billion.
With the recovery of SCC, and its other subsidiaries this year, the stock should further appreciate to higher PE multiples.
3| SPC Power Corporation
Price: P13.90 Yield: 11.6 percent
Formely known as Salcon Power Corporation, SPC Power (PSE:SPC) is in the business of power generation and distribution through its various operating subsidiaries in Iloilo, Naga, Bohol and Cebu.
About 67 percent of SPC’s revenues is contributed by power generation while the balance of 33 percent from power distribution.
Revenues have been growing by an average of two percent annually for the past seven years before the pandemic, which translates to an increase of nine percent in earnings every year, from P996 million in 2012 to P1.8 billion in 2019.
During 2020 pandemic, SPC’s total revenues fell by 28.7 percent to P2.0 billion from P2.8 billion in 2019, which caused its net income to decrease by 11 percent to P1.6 billion from P1.8 billion in 2020.
Last year, SPC’s 9-month total revenues recovered by 34 percent to P2.0 billion from P1.4 billion in the same period last year. This increased SPC’s total net income by five percent to P1.4 billion from P1.3 billion in 2020.
Also during the same year, SPC paid a total cash dividend of P1.55 per share, the highest in its history, which puts its current share price at dividend yield of 11.6 percent.
While there is no assurance that the same amount of dividend will be paid this year considering the challenging business environment, a 50 percent dividend cut at P0.80 per share will still make the stock’s dividend yield attractive at 5.74 percent.
4| LT Group, Inc
Price: P9.99 Yield: 10.8 percent
LT Group (PSE: LTG) is the holding company of the business tycoon Lucio Tan that owns 100 percent of Tanduay, the third-largest distilled spirits producer in the country with 25-percent market share, and 100 percent of Asia Brewery Incorporated.
LTG also owns an indirect stake of 49.6 percent of Philip Morris Fortune Tobacco, the leading tobacco manufacturer, with 67-percent market share; 56.5 percent in Philippine National Bank (PNB) and 100 percent of Eton Properties.
LTG’s total revenues, about half of which comes from PNB and the balance from Tanduay and Asia Brewery, have been growing by 10 percent annually for the past 10 years, from P40 billion in 2010 to P94 billion in 2019.
This growth in revenues translated to 16 percent annual growth in net income to P23 billion from only P5.9 bllion in 2010.
In 2020, LTG’s total revenues managed to grow by 0.3 percent to P94.4 billion but its total net income fell by 9.1 percent to P21 billion.
This year, LTG’s nine-month total net income continued to fall by 65 percent to P6.2 billion from P17.9 billion in the same period last year, as its total administrative expenses increased by 35 percent due to higher provision for credit losses from its banking unit, PNB.
But despite the drop in earnings, LTG paid a record cash dividend last year at P1.08 per share, 33 percent higher than the P0.81 per share it paid in 2020.
At this cash dividend, LTG enjoys a dividend yield of 10.8 percent.
Because LTG has yet to recover its revenues and net income, there is a possibility that it may cut its cash dividends this year.
Assuming it goes back to P0.30 per share, which it paid in 2019, the stock’s dividend yield will fall to only three percent.
LTG is currently trading at 41 percent discount to its book value of P17.00, making it one of the most undervalued conglomerate stocks in the market.
5| Premiere Leisure Corp
Price: 0.43 Yield: 9.5 percent
Premium Leisure Corp (PSE: PLC) is a gaming investment company majority owned and controlled by the SM Group through Belle Corporation.
Through its partnership with Melco Resorts and Entertainment, a leading developer and operator of integrated gaming resorts in Macau, PLC has an interest in the development of City of Dreams Manila in PAGCOR Entertainment City.
PLC also owns a 50.1% stake in Pacific Online Systems Corporation (PSE: LOTO), a publicly listed company that provides lottery software and equipment to the Philippine Charity Sweepstakes Office (PCSO).
About 66 percent of PLC’ total revenue is contributed by its gaming revenues with the balance of 33 percent from equipment lease rentals and commissions.
PLC’s total revenues have been growing by an average of 28 percent per year in the past five years prior to pandemic from P1.47 billion in 2015 to P3.9 billion in 2019.
This steady growth in revenues increased PLC’s net income by an average of 95 percent per year from P155 million in 2015 to P2.3 billion in 2019.
In 2020, during the coronavirus crisis, PLC’s total revenues declined by 76 percent to P963 million from P3.9 billion in 2019 due to the impact of the mandatory lockdown imposed by the government.
The fall in revenues resulted to 77 percent decline in PLC’s net income to P517 million from P2.3 billion in 2019.
Last year, the reopening of the economy enabled PLC to recover by more than doubling its nine-month total revenues to P1.3 billion from P546 million in the same period last year.
The strong recovery in total revenues resulted to net income of P945 million from a flat income of P13.7 million in 2020.
PLC has been a consistent dividend payer since 2015. Last year, the company paid cash dividend of P0.04075 per share, which is 19 percent lower than its dividend in 2020.
But even at this dividend, PLC enjoys a relatively high dividend yield of 9.5 percent.
PLC is also trading at 15.6 percent discount to its book value of P0.51 per share.
Given the expected recovery in PLC’s net income this year and its low Price-to-Book ratio, we can expect the company to pay higher cash dividend next year, and higher stock price, too.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888