Dividend-Paying Turnaround Stocks

We have always liked dividend-paying stocks for three principal reasons.  First, if the stock stays flat for a while, you get paid something while you wait for it to move up.  Second, if the market goes down, stocks that pay dividends tend to go down less because their holders are not quite so anxious to sell them.  Finally, even though dividend rates may seem low, they add up to real money over time.  If you hold a stock that has a 3% dividend yield for four years, the dividend adds 12% of incremental return.  As a friend of ours likes to say, “That’s better than a poke in the nose.”

Recently, investors have been pouring into certain dividend paying stocks, particularly utilities and REITs as bond substitutes, since actual bond yields are so low.  That has pushed the prices of these bond substitutes up quite a bit over the last year or two, and we think they may be vulnerable when interest rates finally do begin to rise.  The stocks below have performed less well recently, but have the potential to begin showing positive fundamental improvement in the not-too-distant future.  In the meantime, they are paying relatively generous dividends.

American National Insurance was founded in 1905 by W.L. Moody Jr.  Today, the company offers a broad line of insurance products from life and health to property and casualty.  The stock rallied nicely in 2013 but has underperformed since then, partly because the low interest rate environment has crimped the earnings on the company’s investment portfolio.  But American National, which is still controlled by Moody descendants, is solidly profitable, and the balance sheet is conservatively financed.  They’ve paid a dividend for each of the last 104 years.

AT&T, along with Verizon, is one of the two leading wireless carriers.  The stock has been largely stagnant for two and a half years.  Over that time, the company has built up its wireless offerings, including becoming a dominant iPhone carrier and managing the slow demise of its fixed wireline segment.  Responding to aggressive competition from smaller wireless companies has held back operating gains, but management has continued to build out and upgrade the company’s wireless network in order to maintain its market leadership into the future.

CA, formerly Computer Associates, is another company seeking to move from declining legacy products (mainframe solutions) to newly developing environments (large data centers along with cloud- and software-based enterprise solutions).  The company’s CEO took the helm in early 2013.  He’d previously taken Taleo Corp. from an IPO in 2005 to its sale to Oracle in 2012.  He has some attractive assets to work with at CA, including a loyal customer base and strong operating cash flows.

Coach’s new CEO and creative designer are seeking to get the stock going in the right direction again after roughly three years of decline.  They are looking to build on the strong Coach brand that has been established in women’s handbags and accessories and extend its reach into new product lines.  Furthermore, international expansion opportunities appear attractive, including in Japan and China.

Diebold is best known as a maker of ATMs, a product line that still generates the lion’s share of revenues.  Diebold has faced a variety of headwinds over the last few years, including being collateral damage during the financial crisis and a management crisis spawned by bribery charges in China, Indonesia and Russia.  A host of management changes ensued, including a new CEO.  The new team began by taking costs out of the business, but it is now focused on growing revenues and improving margins.  Foreign markets remain attractive, and the company is coming out with new products to boost domestic revenue as well.

General Motors has come a long way since its government bailout in 2008.  Post-bailout management has done a good job of putting the company’s financials on sound footing as well as dealing with the fallout from recalls.  The soundness of the balance sheet is shown by the company’s ability to initiate a $5 billion stock buyback program.  It will also be raising the dividend beginning in the next quarter.

Intel is a rather well-known story, but the turnaround has taken so long that Wall Street is mostly ignoring it.  Nearly 60% of analysts have a “hold” or lower rating.  Although Intel still derives about two thirds of its income from the declining PC market, it is focusing its substantial R&D budget and storied manufacturing capabilities to capture share in the growing mobile and tablet markets.  The dividend was recently raised.

Lexmark International was originally spun out of IBM in the 1990s as a manufacturer of printers and other peripheral hardware.  The printer business has become increasingly competitive, and the company is seeking to morph into a supplier of a broad range of software-based systems to support faster and smarter information processing.  Management believes the worldwide market for content/business-process management exceeds $10 billion and is growing 10% annually. 

Owens & Minor is a leading supplier of medical and surgical products and supply chain and logistics services to 4,000 customers, ranging from acute-care hospitals to the Department of Defense.  The company is being squeezed between increasingly cost-conscious healthcare customers and suppliers seeking to maintain their own margins.  As a result, the stock is trading no higher than it did in the second quarter of 2011.  The company is undergoing a CEO search, and so the stock may languish a bit longer, but with no buy recommendations from Wall Street, the stock may be attractive to contrarians now.

Rayonier, while technically a REIT, has not been bid up the way other REITs have been.  After the company spun off its Advanced Materials unit in 2014, it is now largely a real estate and timberland company, as well as a producer of wood fiber.  It is similar to Weyerhaeuser, one of the stocks on our recommended list, but it has performed much worse.  One of the reasons for the underperformance is the fact that an audit of the firm’s forest assets revealed an overharvesting of its timber lands in the Northwest, which led to a flurry of lawsuits.  The new CEO and CFO appear to be resolving those issues.  The bulk of the firm’s timber properties stretches from Savannah, GA to Daytona Beach, FL, a region that should see rising land values in coming years.

Royal Dutch Shell has been hurt by the sharp decline in oil prices since mid-2014, but it has an edge over many competitors because it is well along with a plan to divest some $15 billion of assets by the end of 2015.  The balance sheet is solid, and the company is being more selective about new exploration activities.  An expected rebound in European markets, which account for roughly 40% of revenues, would help relieve pressure on margins.  While there is some risk to the dividend if oil prices stay depressed, we don’t see management eager to reduce it anytime soon.

Disclosure Note:  Accounts managed by an affiliate of the Publisher own securities in certain of the companies discussed above.


Yields Pay to Wait on Turnaround



Recent Price

4-Year Range

Market Cap $Bil.

Yield %

Debt to Equity

American National Ins.



































General Motors*














Lexmark International







Owens & Minor














Royal Dutch Shell*



88.13– 58.37




* Previous Turnaround Letter recommendation        


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