Dividend Stocks Are Fickle
Here's The Reasons Why & A Few More To Consider
The Penn Central Transportation Company's bankruptcy in 1970 stands as one of the most significant financial collapses in American history. Penn Central was formed in 1968 through the merger of two venerable railroad giants, the Pennsylvania Railroad and the New York Central Railroad. At the time, it was “hailed” as a move to create a stronger, more efficient railroad system. It soon became apparent that the merger was plagued with numerous issues, including incompatible computer systems, redundant routes and a burdensome debt load.
The bankruptcy of Penn Central in June 1970 sent shockwaves through the financial markets and had far-reaching consequences. It was the largest corporate bankruptcy in American history up to that point, with debts totaling over $6 billion. The collapse of Penn Central had ripple effects throughout the economy, affecting industries that relied on rail transportation, as well as investors, creditors and employees.
The federal government was forced to step in to prevent a complete breakdown of the railroad system. Congress passed the Regional Rail Reorganization Act of 1973, which led to the creation of the Consolidated Rail Corporation (“Conrail”) in 1976. Conrail assumed the assets and operations of bankrupt northeastern railroads, including Penn Central, and was tasked with revitalizing and modernizing the rail infrastructure.
The Penn Central bankruptcy is a cautionary tale about the basic perils of corporate mergers and the importance of sound financial management. It also highlighted the vulnerability of traditional industries like railroads in the face of changing economic and technological landscapes. More so it taught investors a lesson.
I remember Penn Central well. It was a stock touted and owned by pension plans and more. Just about every analyst recommended the stock because of its industry stature, its dividend payout and its balance sheet. One had to question how everyone just blew it. How could the “numbers” be so wrong. In my world due diligence took on a whole new meaning. I quickly learned to believe nothing I read and half of what I heard. The use of personal “due diligence” soared, the bitter taste of faulty information remained.
So What Else Dividend Wise Exists
Before digging into other dividend stocks that are available in the market, it’s always a good idea to categorize them. Remember first that they are “stocks”. We all realize any stock can go up or down, that’s a fact. We also realize that overall return is based upon two criteria, dividend payment and growth. Taking those two functions into our basic discussion reveals the following classes of investing in dividend pating securities.
Dividend Only - These are stocks, owned in portfolios as they distribute money to the holders of their stocks. In this case, growth is not the primary reason for most to invest in them. To be a solid investment in this arena, stocks of this nature earn more internally than they pay out. In addition their overall margins are stable and their P/E ratios exhibit positive trends.
Dividend & Growth - These are stocks, often owned in investment portfolios, as they distribute dividends to the holders of their stocks and produce basic growth in the price of the security. In this case, both growth and dividends are the main
reason for most to invest in them. To be a solid investment in this arena, stocks of this nature naturally earn more than they pay out but that total dividend amount is far less than “dividend only” stocks. While their overall margins are stable and their P/E ratios exhibit positive trends, “street” expectations believe the price of the underlying security will increase. This expected upward combination serves as the reason for their purchase.
Speculative Payouts - These are stocks that distribute money to the holders of their stocks but may not earn more internally than they pay out. In addition their overall margins are unstable at best and their P/E ratios exhibit speculative trends that must be constantly monitored, analyzed and evaluated.
In yesterday’s paid Substack article our three favorite ‘dividend’ stocks were discussed in detail but there’s more. Today’s discussion presents a few more on our radar, some owned in the money we manage but we ‘usually’ just depend upon income ETFs to do the heavy lifting. Do your own due diligence when picking which one works best for you. It’s a great exercise but always remember, the size and trading volume associated with the selected ETF is important.
Here’s A Few Dividend & Growth Stocks
Kinder Morgan (“KMI”)
Kinder Morgan is a major energy infrastructure company operating in the midstream sector, primarily involved in the transportation and storage of energy products such as natural gas, crude oil, refined petroleum products, and carbon dioxide. It’s grown into one of the largest energy infrastructure companies in North America.
Dividend / Yield - $1.15 / 6.16%
Nextera Energy (“NEE”)
NextEra Energy, Inc. is a leading clean energy company in the United States, known for its focus on renewable energy generation, particularly wind and solar power. It is headquartered in Juno Beach, Florida. NextEra Energy operates through two primary subsidiaries: Florida Power & Light Company and NextEra Energy Resources, LLC,.
Dividend / Yield - $2.06 / 3.12%
United Microelectronics (“UMC”)
United Microelectronics Corporation is one of the world's leading “semiconductor” foundry companies, specializing in basic manufacturing of integrated circuit (“IC”) products for various applications. A Taiwanese entity it offers a range of advanced process technologies and services to semiconductor companies worldwide.
Dividend / Yield - $0.58 / 7.39%
Verizon (“VZ”)
Verizon Communications Inc. is one of the largest telecommunications companies in the United States. It provides a wide range of ‘communication’ services to consumers, businesses and government agencies. It operates both wireless and wireline networks, offering mobile phones, internet, television and digital media solutions.
Dividend / Yield - $2.66 / 6.70%
It’s only fair to end with my speculative favorite, British American Tobacco. It’s meant to be an exercise for you so get ready to do your own ‘due diligence’. It meets all of the basic criteria discussed above so dig in. Is this stock more like Altria or Penn Central?
British American Tobacco (“BTI”)
British American Tobacco is one of the world's “largest” tobacco companies, with a significant presence in the global tobacco and nicotine industry. It manufactures and markets a wide range of tobacco products, including cigarettes, cigars and smokeless tobacco, under well-known brands such as Lucky Strike, Dunhill, Kent, Pall Mall and Rothmans.
Dividend / Yield - $2.93 / 10.02%
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