Multiple studies have shown that over the long term, dividends account for around 50% of equities returns. This considerable contribution to your portfolio means that you just can’t ignore dividend stocks.
Of all the dividend plays out there, Royal Dutch Shell (LSE: RDSB) is one of my favourites. The oil behemoth has a tremendous dividend record, having paid one every year since the Second World War and management’s actions during recent years, as the price of oil has plummeted, shows that the company is committed to maintaining this record no matter what.
When oil prices started to fall, Shell’s management immediately jumped into action. The group slashed capital spending, cut operating costs and introduced an all-share (scrip) alternative to the cash payout, which removed some pressure from cash flows.
To make the most of the prevailing environment, it also pounced on smaller peer BG Group, a $50bn deal that attracted plenty of criticism at the time, but now looks to have been a stroke of genius.
The enlarged Shell is now one of the primary hydrocarbon producers and traders in the world. At the end of November, management announced that the company would discontinue its script payout as efforts to control costs over the past few years start to pay off.
At an investor presentation at the time, Shell’s CEO announced that the group now expected to generate between $25bn and $30bn of annual free cash flow by 2020 assuming a relatively modest oil price of $60 a barrel. Previously, the company had been forecasting only $5bn of free cash flow during this period.
These figures give me confidence that the company can maintain its current dividend yield of just under 6% and possibly increase it in the years ahead. And even if the payout is not raised, shareholder returns are expected to rise as management is planning to buy back at least $25bn of shares between 2017 and 2020 — a promise made at the time of the BG takeover.
I’m also positive on the outlook for Manx Telecom (LSE: MANX) as a dividend stock. Unlike Shell, which has been held hostage by the global oil market, Manx operates a monopoly telecoms business on the Isle of Man. The company’s monopoly position means cash flows are relatively stable, and management can plan ahead for the dividend.
Shares in Manx yield around 6% and the payout, which amounts to £12m a year, is easily covered by cash generated from operations, which was £22m last year. Next year, the company is expected to see a £3m boost to profits after a multi-year transformation completes and management is also branching out overseas.
In December last year, Manx won a deal to provide roaming services to China Unicom, one of the world’s largest telecoms companies, to sell SIM cards to Chinese tourists. As well as this landmark deal, it sells a SIM card called Chameleon in the UK that roams networks to find the best signal for customers. These two initiatives (as well as its established base on the Isle of Man) should help the company grow steadily in the years ahead, and this growth should filter through to the dividend — great news for shareholders.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Rupert Hargreaves owns shares in Royal Dutch Shell B. The Motley Fool UK has recommended Manx Telecom and Royal Dutch Shell B. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.