While babysitting an actual baby can sometimes be fun -- until it's diaper-changing time -- babysitting other people or things, like coworkers or stocks, is just a pain. And dirty diapers are nothing compared to the agony of an underperforming investment.
A quality dividend stock, though, can not only bring more joy than a baby's laughter, but can also pay better than babysitting. Here are three dividend stocks -- Waste Management (NYSE: WM), General Electric (NYSE: GE), and ExxonMobil (NYSE: XOM) -- you can feel comfortable buying and forgetting about for months or even years at a time.
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Speaking of dirty diapers...
Nobody likes to think about trash, but it's all around us and we're generating more and more of it every year. And that's why companies like Waste Management are doing so well.
Waste Management is the largest trash hauler and landfill operator in North America, with 21 million customers including municipalities, businesses, and individuals. It makes its money from hauling trash and recyclables, operating landfills, and selling recycled goods and natural gas recaptured from its facilities.
The company has been on a tear lately, and its second-quarter 2017 results were impressive. Revenues, earnings, volumes of trash processed, cash flows: All were up (and in some cases, like operating income, way up). Customer churn -- the percentage of customers who don't renew their contracts -- was in the single digits at 9%, which shows how well the company is retaining its existing clients. The company recently announced plans to buy back $500 million of its stock this quarter.
The good news is that all of this success has been rewarded by the market, which has bid shares of Waste Management up an amazing 123.2% over the last five years. The bad news is that it's taken a toll on the dividend yield. Despite annual dividend increases for more than a decade, the stock's rise has dropped the yield from more than 4.5% in 2012 to just 2.2% today. With the stock likely to rise farther, the dividend yield could also go down.
However, that's a good problem to have: The dividend itself is likely to keep rising, and if the yield drops due to price appreciation, investors are still getting value for their money. One thing is clear: Trash isn't going anywhere -- well, except into landfills, many of which are owned by Waste Management -- and neither is this company's dividend.
A beaten-down giant
On the other end of the spectrum from Waste Management, we have General Electric. In recent years, the market has been unkind to this century-old industrial titan. Shares have risen less than 20% over the past five years, and still haven't reached their pre-recession highs.
While some people have blamed recently departed CEO Jeff Immelt for the company's woes, many of the problems were due to bad timing. GE's credit arm, GE Capital, which had branched out into offering retail credit cards and mortgages, was hit hard by the recession. Post-recession, Immelt decided to divest much of GE Capital, and invest in oil and gas services businesses. When the oil price slump occurred in 2014, GE was hit hard again.
But GE is trying to reinvent itself with a new CEO, John Flannery, and investments in digital technology. The company still has a powerful brand and impressive sales in businesses like aircraft engines and power turbines. The GE Capital divestiture is essentially complete, and GE Oil & Gas has merged with Baker Hughes, which should help the company's oil and gas division compete in a lower-cost environment.
Better yet for investors, GE's recent price woes have bumped the dividend yield up to a mouthwatering 3.9%, with the company promising a total of $20 billion in dividends and share buybacks this year. The company has paid a dividend for more than 100 years, and although it cut the dividend during the recession, it has since rebounded. GE represents an opportunity for investors to pick up a solid dividend with an impressive yield on the cheap.
An industry in crisis
GE isn't the only company that was hit hard by the oil-price downturn; the entire oil industry saw its shares plummet as oil prices dropped from more than $100/barrel to around $50/barrel today. But as we saw with GE, when prices fall, yields rise, and right now many of the integrated majors -- the large oil companies that produce as well as refine and sell petroleum -- are sporting incredible yields. Royal Dutch Shell and BP are both sporting yields of more than 6.5%, so dividend investors could certainly consider snapping them up, but there's another big company to consider: ExxonMobil.
The largest publicly traded U.S. oil company has, like GE, paid a dividend for more than 100 years. It's also one of the only oil companies -- along with Chevron -- to be designated a Dividend Aristocrat, meaning it has increased its dividend for at least 25 consecutive years.
Due to the aforementioned price downturn, ExxonMobil is now offering a tempting 4% yield: not quite as high as its competitors', but very respectable nonetheless. The company has done a good job lowering its costs, and although production output has slowed somewhat, it has also been making some exciting new discoveries that are likely to pay off. And with oil prices seeming to have stabilized, the company isn't likely to feel pressure to risk its Dividend Aristocrat status. Expect the annual increases to continue.
ExxonMobil is a dividend stock you could have bought in 1911 and held until today with amazing results. It's definitely not one you need to babysit.
Sometimes a high yield isn't the only thing worth looking for in a dividend stock; annual dividend increases, solid business fundamentals, and dividend longevity and stability also factor into the equation. These three stocks fit the bill, and investors should feel safe buying any or all of them.
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