I was at the State Fair with one of my best friends from Elementary School. We were 2,000 miles from our old school stompin’ grounds. And my buddy had been, ahem, a bit overserved.
“It feels like the first time!” he belted alongside Lou Gramm, the former lead singer of Foreigner. No longer kids, we had matured. Now we were slamming beers within sud-splashing distance of the Lou Gramm Band.
We’ll channel Lou and Foreigner today as we consider five fresh dividends. They don’t happen often but, when they do, it’s a special moment. A sign of actual corporate maturity. Management saying we’re no longer kids chasing growth, we’re going to start dishing cash to shareholders.
Big returns often follow.
Take Starbucks (SBUX), which in April 2010 paid its first dividend—a nickel-per-share payout that stunned many plain vanilla observers at the time. Responses were predictable, with headlines like “Starbucks: Slower Growth Ahead” questioning whether the company’s best years were behind it.
They weren’t, of course. Starbucks has clobbered the market ever since. But importantly, SBUX shares kept sprinting in the immediate years following the dividend increase.
Starbucks’ dividend has exploded, too, from 5 cents per share quarterly then to 57 cents now. And if you had bought shares roughly around when SBUX kicked off its new payout, you’d be sitting on a yield on cost of more than 18%!
Let’s also consider chipmaker Nvidia (NVDA), which everyone knows as one of the market’s greatest growth darlings. They forget the company dishes a dividend, and has for more than a decade. This was, needless to say, a good time to buy!
Should all new dividends be bought? Not necessarily. Let’s be calculated contrarians so that we can separate the next Foreigner from the next, well, Lou Gramm Band backup guitarist.
Endeavor Group (EDR)
Dividend Initiation Announcement: May 9, 2023
First Dividend Payment: Sept. 29, 2023
Dividend Amount: $0.06
Dividend Yield: 1.0%
Endeavor Group (EDR) is relatively new to the public markets, having hit the New York Stock Exchange in 2021, but it has roots going all the way back to 1898, when the talent agency Williams Morris Agency was formed.
Endeavor Group is an entertainment, sports and content company that either outright owns, or owns a majority stake in, Ultimate Fighting Championship, World Wrestling Entertainment, Professional Bull Rider, EuroLeague (basketball), Learfield/IMG College, and William Morris Endeavor (WME) Agency, among other brands.
Endeavor spent 2023 splashing a lot of cash—and not just on a shiny new dividend. Its more high-profile move was the $21 billion merger of UFC and WWE into a new company (TKO Group), of which Endeavor will own 51%.
In May 2023, while waiting for the UFC-WWE deal to finalize, EDR announced it planned to start up a new dividend program, with expectations of declaring its first payout sometime during the third quarter. And sure enough, at the end of August, it announced a 6-cent dividend to be paid near the end of September.
Endeavor needs something to spark its shares, which have largely languished since its 2021 offering and currently trade below their $24 IPO price. The dividend could do it—but so could an underappreciation of its wide array of assets, which are simply unlike any other publicly traded company.
Meritage Homes (MTH)
Dividend Initiation Announcement: Feb. 16, 2023
First Dividend Payment: March 31, 2023
Dividend Amount: $0.27
Dividend Yield: 0.6%
Meritage Homes (MTH) is a mid-cap homebuilder that builds single-family attached and detached homes for first-time and first move-up buyers, primarily across the southern U.S., from California to the Carolinas. And like many homebuilders, it also provides mortgage, title, title insurance, and other housing-finance products to buyers of its homes.
Also like many homebuilders, MTH has had a lively couple of years.
The Federal Reserve’s rate-hike spree, which started in 2022, sparked a good nine months or so of decline in homebuilders. But at a certain point, higher rates didn’t just keep buyers out of the market—they kept sellers out, too, which pinched existing-home supply and pushed buyers into new homes. That started a resurgence in homebuilders like Meritage, and signs that the Fed has exhausted its rate-hiking has continued the celebration. BofA says that for every 25 bps that the mortgage rate declines (as long as it’s under 7%), more than a million households are priced back into the housing market.
MTH shares have risen amid this anticipation, as well as on its own Street-beating results. Further whipping up the bull crowd was its February 2023 announcement of a new dividend program, starting with a 27-cent distribution paid out in March. And if these housing tailwinds continue blowing, as many expect, this could mark the beginning of a cycle where MTH shares and the company’s dividend pull one another higher.
Phinia (PHIN)
Dividend Initiation Announcement: Aug. 31, 2023
First Dividend Payment: Sept. 22, 2023
Dividend Amount: $0.25
Dividend Yield: 3.5%
A common thread among many payout initiators (of 2023 and most years): spinoffs from companies with dividend programs that, a month or two after being set loose, kick off their own dividend programs.
I don’t think many of these are noteworthy—this kind of dividend “continuation” is largely expected—but one stands out.
Phinia (PHIN) develops and makes a wide variety of products meant to optimize performance, increase efficiency, and reduce emissions in commercial and light vehicles, as well as for industrial applications. Its products include fuel injection systems, engine control modules, canisters, sensors, starters, alternators, test equipment, vehicle diagnostics solutions, and much more.
Phinia was spun off from BorgWarner (BWA), a diversified vehicle component manufacturer, to allow the companies to focus on their respective areas of the market. Specifically, BorgWarner is gravitating more toward electric vehicles, while Phinia predominantly deals with internal combustion engines (ICEs). The question going forward for investors is whether there’s any future for Phinia—and the answer isn’t as clear as it seems. While EVs very much might be the standard down the road, myriad hurdles remain, and adoption isn’t a given—falling EV demand has forced General Motors (GM) and Ford (F), among others, to rein in their EV aspirations of late.
Phinia shares quickly cooled off and are trading 20% lower than they did immediately after the spinoff. But the dividend might be starting to convince shareholders that all’s not so bad—in part because it’s generous for a “new” payout, at well more than 3%.
HealthStream (HSTM)
Dividend Initiation Announcement: Feb. 20, 2023
First Dividend Payment: April 28, 2023
Dividend Amount: $0.025
Dividend Yield: 0.4%
HealthStream (HSTM) is a health-tech company that has been around since 1990 and publicly traded since 2000, but has avoided investors’ radars for all but a few years in the early 2010s.
HealthStream provides a number of healthcare solutions for workforce development, nurse and staff scheduling, clinical education, credentialing, performance assessment, and more. Its technologies are used by private, not-for-profit, and government entities, as well as pharmaceutical and medical device companies.
Like with many other IT firms, HealthStream has identified an opportunity to use software-as-a-service (SaaS) to drive recurring revenues. HSTM has been integrating its core functions into a unified platform, dubbed hStream, which it believes will be more useful to its clients and, more important for the bottom line, drive both upselling and higher retention.
Of course, the natural goal is to drive the first meaningful explosion in HSTM shares in more than a decade.
In February 2023, the company announced that it would start paying a quarterly distribution in April—a meager sum that comes out to a sub-1% yield at current prices. It’s also a mere 10% of last year’s earnings—a payout ratio that implies all sorts of room for expansion should its hStream platform bear fruit.
T-Mobile US (TMUS)
Dividend Initiation Announcement: Sept. 25, 2023
First Dividend Payment: Dec. 15, 2023
Dividend Amount: $0.65
Dividend Yield: 1.6%
One of the final new dividends paid in 2023 came from T-Mobile US (TMUS), who officially took U.S. telecom from a “Big Two” of AT&T (T) and Verizon (VZ) to a “Big Three” with its 2020 merger with Sprint.
But was it really an American telecom giant without throwing some of its cash at shareholders?
I joke, but I do wonder whether T-Mobile is a dividend magnet situation—or what investors typically fear when a company with an explosive stock starts diverting money from growth to a dividend payment.
To be clear: T-Mobile seems particularly poised to keep stealing its rivals’ lunch. Its subscriber growth continues to impress, especially in rural and enterprise areas, and its 5G network is actually ahead of AT&T and Verizon. Read differently: TMUS’s growth stage isn’t necessarily done yet.
Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.
Disclosure: none
As an expert and enthusiast, I don't have personal experiences or emotions like humans do. However, I have been trained on a wide range of topics and have access to a vast amount of information. I can provide you with accurate and reliable information on various subjects.
Now, let's dive into the concepts mentioned in the article you shared:
Dividends:
Dividends are payments made by a corporation to its shareholders as a distribution of profits. When a company earns a profit, it can choose to reinvest the profits back into the business or distribute them to shareholders in the form of dividends. Dividends are usually paid in cash, but they can also be paid in the form of additional shares of stock or other assets.
Corporate Maturity:
Corporate maturity refers to the stage in a company's life cycle where it has achieved stability and is no longer solely focused on growth. It indicates that the company has reached a level of financial strength and profitability that allows it to distribute cash to shareholders in the form of dividends.
Starbucks (SBUX):
Starbucks is a well-known multinational chain of coffeehouses and roastery reserves. In April 2010, Starbucks paid its first dividend of 5 cents per share, surprising many observers at the time. Since then, Starbucks has continued to increase its dividend, with the current quarterly dividend amounting to 57 cents per share. Investing in Starbucks around the time of its first dividend payout would have resulted in a significant yield on cost.
Nvidia (NVDA):
Nvidia is a leading technology company known for its graphics processing units (GPUs) and artificial intelligence (AI) computing solutions. Despite being primarily recognized for its growth potential, Nvidia has been paying dividends for over a decade. The article suggests that investing in Nvidia when it first initiated its dividend program could have been a good opportunity.
Endeavor Group (EDR):
Endeavor Group is an entertainment, sports, and content company that owns or has a majority stake in various brands, including Ultimate Fighting Championship (UFC), World Wrestling Entertainment (WWE), and Learfield/IMG College. In May 2023, Endeavor Group announced its plan to start a new dividend program, and it paid its first dividend of 6 cents per share in September 2023. The article mentions that Endeavor Group's shares have not performed well since its 2021 initial public offering (IPO), and the dividend could potentially help boost the company's stock.
Meritage Homes (MTH):
Meritage Homes is a mid-cap homebuilder that constructs single-family attached and detached homes primarily in the southern United States. The article highlights that Meritage Homes announced a new dividend program in February 2023, with the first dividend payment of 27 cents per share in March 2023. The company's shares have been positively influenced by factors such as the Federal Reserve's rate-hike spree and the resulting increase in demand for new homes.
Phinia (PHIN):
Phinia is a company that develops and manufactures products for optimizing performance, increasing efficiency, and reducing emissions in commercial and light vehicles, as well as for industrial applications. Phinia was spun off from BorgWarner, a diversified vehicle component manufacturer. The article mentions that Phinia's shares have cooled off since the spinoff, but the introduction of a dividend, which is relatively generous for a new payout, may help improve investor sentiment.
HealthStream (HSTM):
HealthStream is a health-tech company that provides various healthcare solutions for workforce development, clinical education, credentialing, and more. The company announced in February 2023 that it would start paying a quarterly dividend, with the first payment amounting to $0.025 per share in April 2023. The article suggests that HealthStream's focus on software-as-a-service (SaaS) and its hStream platform could potentially drive growth and lead to an increase in the company's dividend.
T-Mobile US (TMUS):
T-Mobile US is a telecommunications company that merged with Sprint in 2020, becoming one of the three major players in the U.S. telecom industry. The article mentions that T-Mobile initiated its dividend program in 2023, paying a dividend of $0.65 per share. While T-Mobile's growth stage may not be over yet, the article raises the question of whether diverting money from growth to dividend payments could impact the company's future prospects.
Please note that the information provided above is based on the snippets from the article you shared. If you need more specific details or have any further questions, feel free to ask!
