The following five dividend-paying companies have made it clear they won’t cut either their dividends or their buyback programs. That is a rarity among dividend stocks these days.
Moreover, these stocks have large buyback programs, which they have either recently reaffirmed or increased.
Dividend stocks, that have large buyback programs, tend to do well over time. The reason is that buybacks help dividends per share to increase rapidly over time. I previously wrote an article here that explains the math behind this reason.
Recently, it seems every company that had a dividend and buybacks program is cutting one or the other, and sometimes both. So I wanted to find dividend-paying stocks where the company has either affirmed or increased both the dividend and buyback program.
These stocks are truly rare gems that should end up rewarding their shareholders with a large return of capital through dividends and buybacks.
Stocks With Solid Dividends and Buybacks: Oracle Corp (ORCL)
Dividend Yield: 1.93%
As the chart on the right shows, Oracle (NYSE:ORCL) has a dividend yield of almost 2% and a buyback yield of 9.4%. This means that the total yield to investors is 11.4%. This represents a form of return of capital to shareholders.
Over the last year, ORCL has spent over $20.9 billion on buybacks. In the last 5 years, the company has reduced outstanding shares by an astounding 28%.
Oracle’s board recently announced an additional $15 billion in share buybacks. The board kept the quarterly dividend level at 24 cents per share. This is the sixth quarter it has paid that dividend level.
In effect, Oracle is focusing on increasing its share buybacks. However, in the quarter ending February ORCL spent just $4 billion on buybacks, compared to $10 billion in the same period last year.
Oracle is also one of the few companies to expect its earnings to grow this coming quarter. It recently provided guidance that non-GAAP earnings would be 3% to 9% higher for the coming quarter.
Microsoft (MSFT)
Dividend Yield: 1.4%
Microsoft (NASDAQ:MSFT) is a solid dividend-paying company. The stock yields 1.4% and the company’s buybacks represent 1.6% of its market value. So the total yield to investors is 3.0%.
On March 9, 2020, MSFT declared another quarterly dividend of 51 cents per share. By doing this, MSFT showed it has no intention of not paying dividends going forward.
Moreover, in the past year to December, MSFT has bought back $19.5 billion of its own shares. This is almost twice as much as it did in its fiscal year ending June 19.
Here’s what’s really interesting though. MSFT has a ton of cash and securities and its free cash flow more than covers its spending on dividends and buybacks. As a result, the net cash balance is growing.
For example, its cash and securities are now over $134 billion. This represents over 11.2% of the company’s total market value. In addition, its cash pile is growing. MSFT’s $40.6 billion FCF exceeds the $34 billion in dividends and buybacks it paid out the past year.
Even if MSFT’s FCF falls 15% to $34.5 billion from the coronavirus impact, it will still be able to afford to pay its dividends and buybacks. And that doesn’t factor in the large cash reserve. So, look for MSFT to do well in this stock market pullback.
World Fuel Services (INT)
Dividend Yield: 1.8%
World Fuel Services (NYSE:INT) provides fuel for the aviation, marine and land transportation industries worldwide. And INT just announced a massive buyback, one of the very few companies to do so in the middle of this crisis.
On March 16, 2020, World Fuel announced that it would continue paying a regular 10 cents per share quarterly dividend. This gives INT stock a 1.7% dividend yield.
In addition, INT said it would buy $200 million of its own shares. This buyback program represents almost 12% of its total market value. So the total yield to investors is over 13.7% of its shares.
That is a ballsy move for a stock in this day and age. And why not? In the last 12 months, INT generated $229 million in cash flow from operations. After $81 million in capex spending, it made $148 million in FCF.
Since the dividend cost only $21 million and its annual buybacks are about $65 million per year, INT can easily afford these capital return payments. Look for the stock to do well over the next year.
ConocoPhillips (COP)
Dividend Yield: 5.74%
ConocoPhillips (NYSE:COP) stock is very cheap. As the chart at the right shows, COP stock sports a 5.8% dividend yield, plus an 8.6% buyback yield. This gives it a total yield of over 14%.
The company raised its buyback program to $25 billion. This is open-ended, with no date when it will be completed. Nevertheless, it represents an astounding 71% of its present $35 billion market value.
However, Conoco recently trimmed its share buybacks to a quarterly run rate of $250M beginning in Q2 from the previous $750M run rate. But the company didn’t cut them out completely. It cut its capex program but did not cut the dividend.
I estimate that COP stock is worth at least $83.46 per share. This represents an upside of approximately 100% over the present COP stock price.
eBay (EBAY)
Dividend Yield: 2.1%
eBay (NASDAQ:EBAY) stock is very cheap. The chart at the right shows that the dividend yield is 2.1%, but the buyback yield is an astounding 20.4%. This gives EBAT stock a very high 22.5% total yield.
eBay produces a large amount of FCF, over $2.56 billion. At the end of February, eBay announced that it was going to spend $4.5 billion during 2020 on buybacks.
This represents the proceeds it received from the sale of StubHub. In fact, it only received $4.05 billion. But since its normal buyback program is $1.5 billion, it is adding $3 billion from the StubHub sale to increase the share repurchases to $4.5 billion.
Since the beginning of the coronavirus outbreak, eBay has not indicated it would slow this buyback program down. In fact, it makes sense to buy more shares when the stock is down.
As a result, the total yield for EBAY stock is now an amazing 22.5%.
Summary and Conclusion On These Dividend Stocks
These five stocks have an extraordinary ability to not only keep paying their dividends and buybacks during this crisis, but they are intent on doing so. That is really quite advantageous when stock prices are falling. It allows the buybacks to buy more stock.
As a group, the average of these five stocks has a 2.6% dividend yield. Moreover, the average buyback yield is over 10%. You can see this in the table above.
Look for these stocks to do well over the next few quarters, as these companies follow through with their sustained dividends and buybacks.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks.