Don't just judge a company's a payout potential by its quarterly distributions -- some dividends are bigger than their yields may suggest. You don't expect to make bank on chicken wings, Chinese online gaming sessions, or warehouse club shopping trips, but these unlikely companies offer some healthy long-term payouts if you're patient.
Wingstop (NASDAQ:WING), NetEase (NASDAQ:NTES), and Costco (NASDAQ:COST) are currently yielding 0.4%, 0.9%, and 0.8%, respectively. They're not going to come up on your stock screens looking for high-paying investments. Take a closer look, and you will probably be rewarded in the process.
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Wingstop
There's a lot to like in Wingstop if you're a growth investor. The fast-growing chain of restaurants specializing in saucy chicken wings was one of the few eatery concepts that didn't skip a beat during the pandemic downturn. Comps actually accelerated in 2020 as takeout and third-party delivery services helped provide comfort food for folks eating at home.
Its latest report was not initially well-received by investors, but it checks off all of the boxes that growth investors crave. Systemwide sales rose nearly 27% to hit $502.5 million in the fourth quarter, fueled partly by new openings over the past year, but mostly by an 18.2% surge in domestic comps. Adjusted earnings followed suit, rising from $0.14 a share a year earlier to $0.18 a share this time around.
The 1,538-unit chain is killing it in the new normal, and digital sales that accounted for a healthy 38% of its systemwide sales is now at 63% of the mix. Wingstop's quarterly distributions of $0.14 a share are double the rate it was paying four years ago, but with the stock's triple-digit price tag, we're talking about a meager yield of 0.4%. That's just part of the story.
As a franchisee-fueled model, Wingstop's generating high-margin revenue with an asset-light model. It's been rewarding shareholders with special one-time distributions including a beefy $5 per-share payout three months ago. Wingstop has delivered four special dividends since going public six years ago, and the $15.55 in total distributions in that time is almost enough to make its IPO investors -- folks who got in on the stock offering at $19 a share -- whole.
NetEase
Investors don't typically view Chinese growth stocks as a hotbed for distributions, and NetEase isn't going to set the income-investing world on fire with its modest current rate. However, an interesting twist here is that the online-gaming pioneer sets its quarterly dividend based on 20% to 30% of its anticipated after-tax earnings. In short, as NetEase grows, so will the distributions.
NetEase is certainly growing. It went public 21 years ago at $15.50 a share, but adjusted for a 4-for-1 stock split in 2006 and a 5-for-1 split back in October, we're talking about an IPO price of $0.775. This is a 140-bagger since hitting the market in 2000, so growing its stock, revenue, and dividend-based earnings is all in its DNA. Its dividend will fluctuate from quarter to quarter but its annual sum of dividends has more than tripled over the past six years.
There are certainly risks to investing in China stocks, but knowing that NetEase is willing to pay roughly a quarter of its earnings to its shareholders has to provide some degree of comfort. The pocket change is nice, but ultimately, the capital gains is where the real money is being made in NetEase.
Costco
The best-known of the three stocks on this list is Costco. The warehouse-club operator is wildly popular for deal-seeking shoppers, and its resilience in the early days of the pandemic prove its all-weather appeal. It's been posting strong growth through the COVID-19 crisis, and with a 91% membership renewal rate, folks aren't flinching with the annual fees.
Costco is another company that's been fortifying its already rising quarterly dividend with the occasional one-time bonus. It's not quite at the same cadence with these one-off paydays as Wingstop, but it has come through with a heavy one-time dividend every two to three years. Its latest special distribution was for $10 per share two months ago. Yes, it's not just the bulk-sized packaging that comes in large amounts.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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February 27, 2021 at 07:00PM
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