Defense, software and fast food top list of payout performers
It was another week of big losses on Wall Street, as the Federal Reserve’s “Operation Twist” failed to get the bulls dancing. Traders were let down by the lack of any new form of quantitative easing from Chairman Ben Bernanke and his team. More importantly, the Fed basically said the economy was headed toward recession, and that fear of recession prompted major selling throughout global markets after the Federal Open Market Committee meeting.
Yet even as Wall Street focused on the Fed, Main Street got a nice dose of increased dividends from several of its most widely held stocks. Big defense, big software and big fast food topped this week’s list of payout performers, and the move by these and other stalwart firms proves that despite the latest selloff, income-focused investors continue ringing the register in the following six stocks.
Diversified medical device and pharmaceutical firm Covidien (NYSE:COV) issued a winning prescription to shareholders, raising its quarterly dividend by 12.5%. The new payout of 22.5 cents from 20 cents is payable Nov. 4 to shareholders of record as of Oct. 13. The new dividend yield, based on the closing value of $44.77 on Sept. 22 (the day the dividend was announced), is 2.01%. Last month, Covidien announced a new $2 billion share repurchase program, which the company says underscores its commitment to balance cash return to shareholders with reinvestment in the business.
Fifth Third Bancorp
Regional bank Fifth Third Bancorp (NASDAQ:FITB) raised its quarterly dividend by 33% to eight cents per share from the previous quarter’s six cents. The payout boost was the second increase this year by Fifth Third, which earlier this year repaid its $3.4 billion in taxpayer-funded TARP bailout assistance. The enhanced dividend is payable on Oct. 20 to shareholders of record as of Sept. 30. The new dividend yield, based on the Sept. 20 closing price of $10.38, is 3.08%.
Host Hotels & Resorts
Lodging real estate investment trust Host Hotels & Resorts (NYSE:HST) is one of the largest owners of luxury and upscale hotel properties, and this week the company lavished more dividends on its shareholding occupants. The company raised its quarterly dividend to four cents a share from the previous payout of just one penny per share. The plush new dividend is payable on Oct. 17 to shareholders of record on Sept. 30. The new dividend yield, based on the Sept. 19 closing price of $11.65, is 1.37%.
Defense giant Lockheed Martin (NYSE:LMT) makes such high-tech weaponry as the F-22 stealth fighter, but there’s nothing stealthy about the company’s move to raise its quarterly dividend. Lockheed lifted its payout to $1 per share from the previous payout of 75 cents per share. The dividend is payable Dec. 30 to shareholders of record as of Dec. 1. The new dividend yield, based on the Sept. 22 closing stock price of $73.14, is 5.47%. In addition to the bigger quarterly payout, the company also announced a repurchase program of up to $2.5 billion in common stock.
Fast food giant and Dow component McDonald’s (NYSE:MCD) increased the portions on its quarterly dividend by 15%, upping its payout to 70 cents per share from 60 cents. CEO Jim Skinner said the company will return $6 billion to shareholders in 2011 through a combination of dividends and share repurchases. The world’s largest fast-food chain says the new dividend will be paid on Dec. 15 to shareholders of record as of Dec. 1. The new dividend yield, based on the Sept. 22 closing price of $85.99, is 3.26%. McDonald’s has boosted its quarterly dividend every year since 1976.
Software behemoth and Dow component Microsoft (NASDAQ:MSFT) updated its quarterly dividend, increasing its payout by 25%. The new dividend of 20 cents per share is payable Dec. 8 to shareholders of record on Nov. 17. The new dividend yield, based on the Sept. 20 closing price of $26.98, is 2.97%. The current increase follows last year’s payout hike of 23%. But despite the bigger dividend, many on Wall Street think the dividend is paltry compared to Microsoft’s $53 billion in cash and short-term investments.
Apples and Googles of the world are beating headwinds
Quick — what’s the one stock you feel comfortable owning right now? If you said Apple(NASDAQ:AAPL), you’re not alone. Among large-cap stocks, there aren’t many that offer the combination of Apple’s massive balance sheet, strong organic growth and promise of future catalysts in the form of hot new products in the pipeline. It’s no surprise, then, that the stock has outperformed both the S&P 500 and the broader tech sector since the market started going south at the beginning of May.
While Apple garners all the headlines, it isn’t the only tech stock to outshine its large-cap peers in recent months. A look at the numbers shows meaningful outperformance for seven of the eight largest tech stocks since the April 29 top:
Looking at this, one would think that the tech sector as a whole has been a safe haven through the market downturn. In fact, that’s been anything but the case. Beneath the $50 billion market-cap cut-off, the numbers are not nearly as positive. In fact, 14 out of the next 20 largest U.S.-domiciled tech stocks have failed to keep up with the S&P 500 since the market started to roll over. Granted, some of these companies are stock-specific stories that would have underperformed in any market.Hewlett-Packard (NYSE:HPQ), Research In Motion (NASDAQ:RIMM) and Yahoo(NASDAQ:YHOO) are names that jump out from the list. Still, the table below shows that it isn’t necessarily accurate to talk about “technology’s outperformance.”
So what’s driving the outperformance of the largest tech stocks? The simple answer is, of course, fundamentals. In terms of their earnings, balance sheets and market positions, these companies are much better equipped to deal with macroeconomic headwinds than most stocks in the financial or cyclical sectors. How long stocks like Apple, Amazon (NASDAQ:AMZN), and Google(NASDAQ:GOOG) remain immune to a slowing economy is up for debate, but for now it has paid handsomely to stick with what’s working.
There’s more to this story than just fundamentals, however. If an equity-only fund manager needs a hiding place, he or she doesn’t have the option to buy gold or Treasuries. The logical safe haven is large-cap, cash-rich companies with stories that have a demonstrated ability to keep growing despite the slow economy. More to the point, there’s no “career risk” to holding Apple in your portfolio right now. In short, these stocks have become a safe haven for dedicated-equity managers that have nowhere else to hide.
The result is that the large-cap tech trade has become very crowded. In the short term, that doesn’t matter — as long as the markets remain weak, this trade can keep working. But once the market stabilizes and managers move back to the “risk-on” trade, these outperforming stocks likely will represent a source of funds.
The bottom line: Ride this wave of remarkable outperformance for the largest tech stocks as far as it will go. But recognize it for what it is, and be ready to look elsewhere for opportunities once the VIX makes it back to the mid-20s.
Apple (NASDAQ:AAPL) CEO Tim Cook is going to go on stage on Oct. 4 and finally, after nearly a year of anticipation,announce the iPhone 5.He also likely will announce the iPhone 4S,a smaller, cheaper version of the current best-selling model of smartphone sold by the Cupertino, Calif.-based company.
Consumers already rabid for the company’s portable devices will have even more to celebrate as their lust for the latest and greatest device finally will be sated. And Apple shareholders have already seen the stock hit an all-time high in September. The iPhone 5 should push shares even closer to that vaunted $500 price point.
The iPhone 5 release also brings good news for telecoms Verizon (NYSE:VZ), AT&T (NYSE:T) and even Sprint (NYSE:S), while retailers like Best Buy (NYSE:BBY), Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) bask in the glow of fresh sales. But these aren’t the only publicly traded companies that stand to benefit from the new iPhone’s release.
Here are five stocks that can expect a boom when the iPhone 5 hits shelves:
The iPhone’s success has been a thorn in Adobe’s (NASDAQ:ADBE) side for years thanks to Apple’s staunch refusal to properly support the company’s media platform Flash. For those unfamiliar, Flash is the application used for any number of things on the web, from video on Google’s (NASDAQ:GOOG) YouTube to the advertisements cluttering the average web page.
Adobe finally found a way to work around Apple’s restrictions to get Flash on the iPhone though, meaning companies making products with Flash will have a fresh new audience when the iPhone 5 releases. Adobe also has released a number of products for iOS in 2011, including Digital Publishing Suite support for Apple’s Newsstand and a bevy of art tools inAdobe Creative Suite 5.5. To say investors are cool on Adobe would be an understatement, but the iPhone 5 should bear fruit for the embattled company.
eBay (NASDAQ:EBAY) already enjoys a robust mobile business, so the release of one more popular smartphone should only provide icing on the cake. But eBay has one new project that should especially benefit from the popularity of Apple’s new device.
The company plans to open a new mobile payments program through PayPal this fall, allowing users to pay for goods using their mobile phone number and a pin number. Google Wallet is the mobile payment service getting press now, but that service is restricted to a single type of phone on Sprint’s network at the moment. EBay and Paypal’s service won’t be restricted by a phone’s technology, meaning the possible millions of iPhone 5 users this fall likely will find it the mobile payment option of choice.
Of the many publicly traded video game publishers working on Apple’s portable devices, few have enjoyed the successElectronic Arts (NASDAQ:ERTS) has. During the holiday 2010 season — a quarter when Apple sold nearly 9 million iPhones — Electronic Arts’ games accounted for 14 of the top 25 best-selling games in Apple’s App Store EA’s recent acquisition, game maker PopCap,also has a long history of success on Apple’s portables.
EA shares are down from mid-summer highs, but the flood of sales on digital platforms, particularly Apple’s new phone, should help the company report Q4 earnings that will turn things around.
China Mobile/China Telecom
Shares in China’s second- and third-place telecoms are trading below their respective 52-week highs. The introduction of the iPhone 5 into both networks should give both China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA) a major influx of new paying subscribers.
Brian White of Ticonderoga Securities said on Wednesday that he believes China’s 3G smartphone subscribership will grow from 93.8 million in September to 125 million by January. With the iPhone 5 — believed to be a 3G device — supported by all of China’s major telecoms, Apple should play a key part in reaching those lofty subscriber heights.