By Jeff Reeves, MarketWatch
Safe dividends from reliable companies
In times of trouble, investors often turn to dividend stocks for security. After all, firms with generous dividends tend to have reliable profits to back them up -- and reliability is in high demand these days.
But just as the recent pandemic has flipped the script on many aspects of life, it has upended traditional dividend investing strategies. For instance, some of the worst performers so far this year have been REITs that were often seen as bulletproof thanks to long-term lease arrangements with major corporate customers.
Things would have to get completely miserable, the thinking went, before major commercial real estate operators like mall giant Simon Property Group (SPG) saw a bunch of tenants miss their rent checks, right? Well, things are indeed miserable -- particularly if you own Simon stock and are sitting on a decline of about 65% this year.
If you're looking for yield but worried about trusting the same old dividend plays, then consider these off-the-beaten-trail tech stocks with decent yields.
Digital Realty Trust (DLR) is also a REIT, but one of much different flavor than mall operator Simon. It rents out server rooms to power the cloud-based operations of clients in financial services, technology and digital media, among others. And unlike mall traffic that has evaporated, internet traffic is booming in the age of social distancing as more people are using digital solutions for work, entertainment, shopping and communication.
Remember, all that data has to live somewhere. Digital Realty is happy to maintain this physical infrastructure for its customers so they don't have to house the servers on-site -- for a modest fee, of course. Its long-term contracts coupled with a long-term uptrend in data usage adds up to a powerful story that has allowed this unconventional REIT to tack on 24% gains this year through Monday. Compare that to the 4.6% drop in the Nasdaq Composite -- or the 12.6% slide in the S&P 500 .
There's also a strong history of dividend growth, with payouts rising from 48 cents quarterly to start 2010 to $1.12 at present -- a 133% increase.
Cogent Communications Holdings
A slightly different twist on high-tech infrastructure is Cogent(CCOI), a firm that not only provides data-center services but also private high-speed internet access as well as web hosting and content delivery to businesses worldwide. It is a Tier 1 internet service provider, meaning it can exchange data with other Tier 1 firms like AT&T (T) and Verizon (VZ) without paying for traffic like lower-tiered networks do.
Cogent is unique, however, in that it treats its bandwidth like a commodity rather than charging fixed fees like its Big Telecom competitors. That not only means it can sometimes offer better pricing structures as an ISP, but that it also has flexibility to scale up very effectively simply by charging clients more as they use more bandwidth -- a massive plus at a time of big demand like the coronavirus pandemic, where unlimited data plans at a fixed price are great for customers but less than ideal for connectivity providers.
If you're an income-oriented investor, the appeal goes beyond this short-term trend and is actually a tale of longer-term reliability. Cogent's dividend that has marched slowly but steadily higher each quarter since 2015, with distributions rising from 34 cents in August of that year to 66 cents this March. Top that off with a beta of 0.3 that hints at tremendous long-term stability.
Investors may want to trust in the company's staying power if things stay rocky this year.
It seems like a lifetime ago when, at the end of 2019, Symantec was renamed NortonLifeLock(NLOK) and sold off its enterprise business. What remains is a $12 billion personal security firm that caters to consumers through virus protection software and credit monitoring tools to guard against identity theft.
There's risk here, of course, and not just because this new and more streamlined company is a bit of an unknown. More practically, sales could slacken if its customers cut back on spending because they are among the newly unemployed. However the hard truth is that only folks with a decent amount of cash to protect tend to purchase this company's services, making it a high-margin business. And with more people surfing the web as they stay at home and subscription plans that tend to be sticky, there's reason to give NortonLifeLock a look.
After all, the company had a strong report in February as it beat on the top and bottom line, and has seen optimism on Wall Street as it approaches its next report on May 1. And rather than fret about the impact of coronavirus, Morgan Stanley instead recently upgraded the stock to "overweight" with a $23 target. With dividends less than half of next year's projected earnings per share, this consumer tech play could be a safe bet with future dividend increases in store.
Unlike some of the other names on this list, Amdocs (DOX) has had a fairly rough go since February and hasn't yet shown signs of bouncing back. However, the stock could be worth a look by long-term dividend investors when you look under the hood.
If you haven't heard of Amdocs, you're not alone. The company is only about $8 billion in market cap and not well-covered, as it is focused on the complicated business of digital consulting where it offers customers solutions that including automated customer service support, better "monetization" to boost e-commerce, and even managing advertising on interactive platforms as a way to squeeze a bit of extra cash out of operations. All of this is done, of course, in exchange for a modest fee under long-term business deals.
Thanks to its reliability, Amdocs boasts a very subdued beta of 0.6 over the last five years -- hinting that while it has fallen on hard times recently, it tends to experience much less volatility than peers over the long haul.
As social distancing takes hold and digital platforms see more traffic, the Amdocs approach presents a lot of value to clients right now. But equally compelling to income investors should be its yield is north of 2% after the stock boosted its payouts 15% in March. Furthermore, even after the payouts rose to an annual rate of about $1.31, it is less than a third of this year's projected earnings of $4.47 a share, so future increases may be in the cards.
Juniper Networks (JNPR) is a smaller but fairly well-known enterprise tech stock, focused on networking hardware such as routers as well as related software and security products. With all the focus lately on remote work and digital stopgaps, Juniper has a nice tailwind behind it -- even if its $8 billion market cap and hardware pedigree admittedly is puts it on its back foot when facing off with larger and more cloud-focused competitors like Amazon Web Services.
Juniper, however, is more than just a short-term play on social distancing. The company's acquisition of analytics provider Mist () for about $405 million last year will help it build on its mission of using artificial intelligence to optimize networks for clients in the long term. And based on fundamentals from before the pandemic struck in earnest, Juniper is riding high after a return to growth in its January earnings report thanks to strong enterprise and cloud sales.
What's more, on Monday Juniper was just upgraded to overweight by JPMorgan with a $27 target after an upgrade from Goldman Sachs the prior week. That's an incredibly good sign given the proximity to its earnings report, which will drop after the close April 28. It also bodes very well for the dividend, which is currently less than half of projected earnings per share and ripe for an increase.
Now read:26 safe dividend plays for income investors to buy now ()
Also:Pocket gains in these 5 stocks that have surged lately -- then flee ()
Jeff Reeves writes about investing for MarketWatch. He doesn't own any of the stocks mentioned in this article.
-Jeff Reeves; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
April 22, 2020 08:14 ET (12:14 GMT)
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