Even though the U.S. economy is on a path of recovery, the COVID-19 pandemic is far from vanquished, with several countries still witnessing increasing numbers of cases each day. So, financial market volatility persists, and the Federal Reserve is also expected to keep interest rates low in the near-term.
In this environment, several investors are turning to dividend yielding stocks to ensure a steady stream of portfolio income. Investors’ interest in dividend stocks is evident in SPDR S&P Dividend ETF’s (SDY) 24.7% returns over the past six months.
While not all high-yielding dividend stocks are a good buy, we think it could be profitable to bet on Rio Tinto Group (RIO), Fortescue Metals Group Limited (FSUGY), and Vector Group Ltd. (VGR) based on their stable business and reliable long-term returns. Their current dividend payouts yield more than 5%.
Rio Tinto Group (RIO)
Headquartered in London, RIO explores for, mines and processes mineral resources worldwide. The company’s key offerings are aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium. It owns and operates open pits, underground mines, mills, refineries, smelters, power stations, and research and service facilities.
On April 20, ELYSIS, a joint venture company led by RIO and Alcoa, selected the Alma smelter, operated by RIO in Saguenay-Lac-Saint-Jean, Quebec, for the first installation and demonstration of its inert anode technology at a commercial size of 450 kilo amperes (kA). The 450 kA cells at Alma will also be supported by a $20 million CAD investment from the Government of Quebec. So, this should lead to increased revenues for the company.
RIO began paying dividends in 1997. And on February 17, it declared a total dividend of 557 cents per share, which included a special dividend of 93 cents per share. Over the last five years, RIO’s dividend payouts have grown at a CAGR of 17%. While the four-year average dividend yield for SBUX is 7.38%, the current dividend translates to a 7.36% yield.
RIO’s consolidated sales increased 3% year-over-year to $44.61 billion for its fiscal year 2020, ended December 31. Its net earnings grew 22% year-over-year to $9.77 billion, while its underlying EBITDA increased 13% year-over-year to $23.90 billion. The company’s underlying EPS increased 21% year-over-year to $7.70.
Analysts expect RIO’s EPS and revenue to increase 61.1% and 28%, respectively, year-over-year in its fiscal year 2021. The stock has gained 81.5% over the past year and closed yesterday’s trading session at $84.01.
RIO’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Value, Momentum, and Stability. Within the Industrial – Metals industry, it is ranked #2 of 42 stocks. To see the additional POWR Rating for RIO (Sentiment and Quality), click here.
Fortescue Metals Group Limited (FSUGY)
FSUGY is engaged in the exploration, development, production, processing, and selling of iron ore, copper and gold deposits. It owns and operates the Chichester Hub in the Chichester ranges, and Solomon Hub in Hamersley ranges of Pilbara, Western Australia. The company holds a portfolio of properties located in Ecuador and Argentina, and it also provides port towing services.
In February, Fortescue Future Industries Pty Ltd (FFI), a wholly owned subsidiary of FSUGY, and Porto do Açu Operações S.A. (Port of Açu), a subsidiary of Prumo Logistica S.A., signed a Memorandum of Understanding (MOU) to assess the opportunity to develop hydrogen-based green industrial projects in Rio de Janeiro, Brazil. The initiative is expected to expand FSUGY’s market reach in Brazil and pave the way for future large-scale industries in the economy.
The company has paying dividends at least twice per year since 2012. Over the last five years, its dividend payout has increased at a CAGR of 118.8%. While the four-year average dividend yield for FSUGY is 9%, the current dividend translates to a 13.63% yield. It paid a dividend of AUD 1.47 per share on March 24.
For the half year ended December 31, 2020, FSUGY’s revenue increased 44% year-over-year to $9.34 billion. Its underlying EBITDA climbed 57% year-over-year to $6.64 billion. The company’s net profit after tax increased 66% year-over-year to $4.08 billion, while its EPS grew 66% year-over-year to 132.70 cents.
The company’s revenue is expected to increase 59.6% year-over-year to $20.46 billion for the fiscal year ending June 2021. The stock has rallied 135.9% over the past year and closed yesterday’s trading session at $32.86.
FSUGY’s strong fundamentals are reflected in its POWR Ratings. The stock has an A overall rating, which equates to Strong Buy in our proprietary rating system. It has a B grade for Value, Momentum, and Quality as well.
Vector Group Ltd. (VGR)
Based in Miami, Florida, VGR manufactures and sells cigarettes in the United States. It operates mainly through two segments—Tobacco and Real Estate. The company operates under the brand names EAGLE 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve, among others. It also provides residential real estate brokerage, relocation, real estate marketing and sales, and title insurance services to real estate buyers and financial institutions.
On April 15, VGR’s New Valley Ventures made an investment in a promising PropTech startups company—Humming Homes. It’s a New York-based tech-enabled home management service. Humming Homes is expected to launch its business in additional cities adjacent to New York city, including Greenwich, Conn., Westchester and parts of Long Island in the coming months. This should drive VGR’s growth in the real estate business.
The company has been paying dividends consistently each quarter for more than two decades. It paid a quarterly dividend of $0.20 on March 30, 2021. While VGR’s four-year average dividend yield is 11.3%, its current dividend translates into a 5.9% yield.
VGR’s revenue increased 26.2% year-over-year to $554.59 million for the fourth quarter, ended December 31, 2020. Its adjusted operating income grew 89.5% year-over-year to $86.62 million, while its adjusted net income increased 83.1% year-over-year to $32.56 million. The company’s adjusted EPS increased 90.9% year-over-year to $0.21.
For the quarter ended March 31, 2021, analysts expect VGR’s EPS and revenue to increase 733.3% and 17.7%, respectively, year-over-year. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 38.6% over the past year and closed yesterday’s trading session at $13.61.
It’s no surprise that VGR has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Growth, and a B grade for Value, Momentum, Stability, and Quality.
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RIO shares were trading at $86.20 per share on Friday afternoon, up $2.19 (+2.61%). Year-to-date, RIO has gained 19.90%, versus a 11.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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