Pioneer Natural, Alico And These 3 Other Stocks Boast Dividend Appeal

A time-honored investing method is to buy stocks that have rising dividends.

In my opinion, it’s a sensible method. A dividend increase acts as a sincerity barometer, showing that management believes earnings progress is sustainable.

Right now, with a bear market raging, I think it is especially sensible, since dividend-paying stocks usually hold up better than most when the bear roars.

Here are five stocks that have increased their dividend at a 10% annual clip or better the past five years. In each case, the dividend yield (the annual dividend as a percentage of the stock price) is at least 2.5%.

Pioneer Natural ResourcesPXD
, which explores for and produces oil and natural gas, leads the pack with a dividend growth rate of 123% the past five years. It also boasts one of the highest dividend yields, 7.9%.

Scott Sheffield, the longtime CEO of Pioneer, was one of the first people to recognize the potential for fracking in the Permian Basin, which includes west Texas and parts of New Mexico. The Permian actually comprises three basins, one of which—the Midland Basin—is dominated by Pioneer.

The oil-and-gas industry tends to have boom and bust cycles, which is probably why the stock is reasonably priced at 11 times recent earnings.

Fort Myers, Florida, was one of the towns most devastated by Hurricane Ian. That’s the headquarters of Alico (ALCO), a company that owns citrus groves and leases land to others in Florida,

Given the intensity of the hurricane, it will take time for the company to return to normal. And “normal” doesn’t necessarily mean prosperity, as the company’s earnings have been spotty.

Still, I think Alico is an interesting speculation. The stock was down 17% in the week that ended October 10. It sells for only six times the past four quarters’ earnings and less than book value (corporate net worth per share).

Alico owns some 84,000 acres of land in eight Florida counties. The dividend might have to be cut, but for now the yield is 7.2%. The five-year dividend growth rate is 32%.

CompX International (CIX) offers a 5.4% dividend yield and has grown its dividend at a 30% clip the past five years. Based in Dallas, the company makes cabinet locks, door locks, ignition switches and many other kinds of locks.

Over the past decade, CompX has grown its sales at close to 5% a year, and earnings more rapidly. In the past four quarters, earnings jumped 38% (partly reflecting home-bound people installing new cabinets) and the company hiked its dividend 50%.

For the third year in a row, I recommend Tyson Foods TSN
, the largest U.S. producer of chicken and beef. It jumped 36% from October 2020 to October 2021, then fell 17% from October 2021 to October 2022.

I like Tyson even more now than I did before, simply because the stock is selling for less than six times recent earnings. Dividends have grown at a 24% annual pace the past five years. The yield is 2.9%.

Packaging Corp. of America (PKG) has grown its revenue by 11% per year the past ten years, as internet shopping requires more and more boxes to be delivered to people’s doorsteps. The company has responded by raising its dividend by an average of 10.7% the past five years. The yield is just under 4%.

Will home delivery take a tumble when the pandemic ends and people return to stores in droves? That’s the fear. Hence, the stock sells for only 11 times earnings. But as I see it, home delivery was a rising trend even before the pandemic, and will continue to rise after it mercifully ends.

Past Record

I’ve written 22 columns before this one about stocks with dividend appeal. My results have been respectable but not great. The average 12-month return on my stock picks in this series has been 9.6%, compared to 9.5% for the Standard & Poor’s 500 Total Return Index. Any victory is welcome, but I’m disappointed in the thin margin.

In an effort to improve performance, I have tightened up the selection criteria this year. To be considered, a stock must now have a dividend yield of at least 2.5% (up from 2.1%) and a dividend growth rate of 10% or better (increased from 7%).

My dividend-appeal picks from a year ago declined 18.5%, while the S&P 500 dropped 15.3%. A big loss in Paramount GlobalPARA
was primarily to blame.

Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.

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Disclosure: I own Pioneer Natural Resources, Paramount Global and Tyson Foods personally and for most of my clients.