Even in the market turmoil, some companies are still rewarding their shareholders.
More than 200 companies have increased their dividends in 2020, according to S&P Dow Jones Indices.
That’s a bullish sign for the stock market, according to Nancy Tengler, chief investment officer at Laffer Tengler Investments.
“It tells me that the management teams have good visibility on future earnings growth,” Tengler told CNBC’s “Trading Nation” on Thursday. “In the companies we own, we refer to what we call a dividend-paying culture where the management set the dividend. And McDonald’s actually says this in their proxy, word for word, they set it as a portion of what they believe long-term sustainable earnings power is. … It’s very optimistic for future earnings growth and kind of counter to what we all would have bet on in March of this year.”
John Petrides, portfolio manager at Tocqueville Asset Management, said it’s not enough to search for high-yielding stocks.
“The key is to invest in companies that have the capacity to continue not only to pay out their dividend, but to grow their dividend,” he said during the same “Trading Nation” segment. “You don’t want to just invest in a dividend stock with a high yield simply because the stated yield is above average. You want to make sure that the company has the wherewithal to continue paying out that dividend over time.”
Tengler named Texas Instruments as her top dividend pick. The chipmaker yields 2.8%, higher than the 1.2% yield for the SMH semiconductor ETF.
“This is a company that actually … generates free cash flow of almost $6 billion and pays out only $3 billion in dividends, has been growing the dividend over 20% per year, 17% this year, but clearly has the ability to continue to pay and grow that dividend,” said Tengler.
Texas Instruments has risen nearly 11% in the past three months, outpacing the 7% gain for the SMH ETF.
Petrides looked outside tech, instead highlighting a name in the real estate investment trust sector.
“We found a mid-cap REIT that we think is quite interesting called Stag Industrial which we own in our enhanced income strategy for those clients looking specifically for income,” said Petrides. “One of the great accelerators of Covid has been the explosion within e-commerce. E-commerce has been a great growing segment pre-Covid but then Covid came and now everything is e-commerce. Stag provides distribution and owns and operates distribution centers and warehouses to continue to facilitate that trend.”
Stag yields 4.6%, above the 3.2% for the XLRE real estate sector ETF.
Disclosure: Laffer Tengler Investments holds Texas Instrument shares. Petrides holds STAG shares.
