The Federal Reserve has indicated interests rates will continue to rise in the foreseeable future. Knowing this, stocks that pay outsized dividends will continue to compete with bonds, while those that pay no dividend may be disadvantaged. These three stocks pay outsized dividends and still offer price appreciation from executing their business plans.
Most investors are familiar with dividends, but many are not familiar with special situation dividends. Advanced Emissions Solutions, Inc. (NASDAQ: ADES) is taking advantage of a special situation created by the IRS to pay a dividend of 8.67% annually.
In 2004, the IRS created a credit for companies producing refined coal (RC) to incentivize refined coal production. ADES seized the opportunity presented by the IRS to build RC facilities. Now, they are using the tax credits created by these facilities to generate a nice cash flow.
While Advanced Emissions no longer runs any of the facilities themselves, they are still able to monetize the tax credits they have captured. In addition to the cash flow from the credits, the company sells products which help reduce mercury and other emissions when burning coal.
With earnings expected to grow 50% next year, continued availability of the tax credits through 2021, and an aggressive stock repurchase plan, ADES should be able to maintain its current dividend stance for many years.
Big 5 Sporting Goods Corp. (NASDAQ: BGFV) has a long history of conservatively paying and increasing dividends. The company has gradually increased the $.05 dividend it paid in Q1 2009 to the current $.15 rate paid quarterly today.
After a slight pullback in the stock, this gives Big 5 a dividend rate of 8.28% at its current valuation of $7.35 per share.
While earnings have taken a hit this year, next years’ projected price-to-earnings (P/E ratio) stands at only 9.86. Insiders are not shying away from the stock either, increasing their stake in the company by over 22% in the past 6 months. If you’re looking for a safe dividend play in a microcap name, Big 5’s record is unassailable.
Finally, how about a meat and potatoes car part manufacturer. Unique Fabricating, Inc. (NYSE: UFAB) makes several of the plastic parts you find in the interior of your car, think floor mats and cup holders. They also make ventilation openings and bumpers. In recent years UFAB has expanded their operations as well as their markets. They have added appliances and HVAC system parts to their automotive lineup.
The stock has traded in a fairly tight range between $7 and $9.50 over the past year. At current prices the stock has a dividend yield of 6.87% with a not overly aggressive P/E ratio of 16.
UFAB also has a price-to-earnings growth (PEG) ratio of only .76, well under the 1 that most analysts look for. This stock seems on track for modest price accumulation to accompany the robust dividend.
As money moves to higher yielding bonds in the coming months, stocks with good dividend yields and growth prospects should hold up well. Advanced Emissions, Big 5 Sporting, and Unique Fabricating provide the yield and growth potential to satisfy yield hungry investors.
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
Article By: Steven Adams