General Mills (NYSE: GIS), Six Flags Entertainment (NYSE: SIX), and ExxonMobil (NYSE: XOM) don't share much in common, but one thing they do is a history of rewarding investors with shareholder-friendly dividends.
There's no guarantee these stocks will continue their wallet-padding ways, but each offers a current dividend yield that's better than that of Coca-Cola, a stalwart income stock included in most dividend portfolios. Here's why now could be a good time to buy these income stocks.
A classic food company in transition
Nicholas Rossolillo (General Mills): The breakfast cereal and baking goods company may be a staple in many kitchen pantries around the globe, but that didn't spare the stock from some dark days last year. Shares were down 34% during the 2018 calendar year as the prepackaged food industry copes with evolving consumer preferences and disruption from smaller upstarts.
The maker of Cheerios, Lucky Charms, and Pillsbury has done an about-face so far in 2019, though. Shares are up 31% as of this writing on optimism that the worst of the processed foods downturn is in the rearview mirror. During the third quarter of the 2019 fiscal year (the three months ended Feb. 24), sales were up 8% and earnings adjusted for one-time items increased 6%. Much of those were due to the Blue Buffalo organic pet food acquisition, but organic sales at existing brands increased 1% during the quarter.
The outlook for the important breakfast cereals segment remains sluggish, but General Mills is optimistic that its investments into healthier food options is beginning to yield positive results. For the fiscal year, management did say its forecast for sales growth will be toward the low end of its previously stated guidance of 9% to 10%, but adjusted earnings got an upgrade to up about 1% expansion compared with a previous forecast of flat to down 3%. That's some much-needed good news for this food titan, as it would indicate business is finally beginning to stabilize.
Oh, and by the way, with shares still well off all-time highs set all the way back in 2016, now's not a bad time to consider jumping on board the General Mills rebound wagon. A dividend yield of 3.8% is pretty good too, one of the best in the consumer staples industry.
It's all fun and games (and serious business, too)
Anders Bylund (Six Flags Entertainment): The theme park operator's stock chart has been doing a pretty good impression of a high-octane roller coaster lately. After rising on a reasonably steady chainlift for many years, share prices plunged 25% lower over the last six months. With low stock prices come high dividend yields, especially when the company provided generous payout boosts along the way. Today, Six Flags supports a generous dividend yield of 6.5%.
It's true that Six Flags' shares fell for a reason. Longtime CEO Jim Reid-Anderson recently announced his retirement, stepping down from that post in February 2020. Meanwhile, the company's international expansion has been sluggish amid jittery economic readings in target markets like China and Dubai. That's enough to put a damper on any multiyear growth spurt.
But these issues should blow over in due time. Six Flags will find new leadership and the global economy will rise again. Anyone who believes otherwise should stay out of the stock market entirely. In the meantime, Six Flags is trading at just 16 times earnings while paying that juicy 6.5% dividend yield directly out of its free cash flows. The time to lock in these low prices and stellar dividends is now.
Production growth could be dividend-friendly
Todd Campbell (ExxonMobil): ExxonMobil's been rewarding investors with dividends for decades, and that's made it a core holding in many income portfolios. If you don't own it in your income portfolio yet, now could be a good time to buy it.
Why? Because the company's cost-cutting over the past few years of weak oil prices has put it in a position for margin-friendly earnings growth when production begins flowing at its massive Stabroek field offshore Guyana. After making its 10th discovery there in the fourth quarter, it estimates Guyana holds over 5 billion oil equivalent barrels. The first stage of production is expected to begin in 2020 and by 2025, it thinks it could be producing over 750,000 barrels per day.
Couple ExxonMobil's Guyana opportunity with growth in the U.S. shale market from its Permian acreage and the potential associated with its vast acreage offshore Brazil, and there's good reason to think that the company's financial picture will remain solid for years.
ExxonMobil's $20 billion in free cash flow after investments in 2018 easily covered the $14 billion it paid out to investors in dividends, so I think it's likely to continue to return increasingly more money to investors. It's boosted its dividend payout in every one of the past 36 years, including a 6% increase last year, and currently it's yielding 4%. That's not as juicy a payout as Six Flags', but it's still bigger than Coca-Cola's 3.43% yield.
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Anders Bylund has no position in any of the stocks mentioned. Nicholas Rossolillo has no position in any of the stocks mentioned. Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.