Credit: It's not hard to find quality income-producing stocks. Nearly every investor out there can screen for stocks based on dividend yields. However, there is far more to successful income investing than buying high-yielding dividend payers.
Many times, the highest yielding stocks are also the least reliable. Remember, the yield is inversely proportional to the share price. In other words, the lower the share price moves, the higher the yield (assuming the dividend payment stays the same). Therefore, high-yielding stocks may only provide the high yields due to a plunging stock price.
Investors must now look beyond dividends for income. Stock buybacks have become a popular way for companies to give excess cash back to investors.
Buybacks, or share repurchase programs, are a viable alternative for savvy investors. The trick is to find companies with long term buyback plans that also have growth catalysts. This combination is the key to finding ideal income stocks.
Here are three income stocks with high growth potential over the long term. Today's disconnect between revenue and share price make these stocks a welcome anomaly.
3 Income-Producing Stocks With Strong Buyback Plans
1. American International Group (NYSE: AIG )
This nearly $60 billion global insurance company boasts a long history of returning cash to shareholders. This, along with a number of other reasons, makes it my favorite income-producing stock.
The company is a leading provider of a broad range of property casualty insurance, life insurance, retirement products, and other financial services to commercial and individual customers.
In my estimation, AIG's shares are undervalued. While the current price-to-earnings ratio is high, the forward P/E -- which is based on expected earnings -- is very reasonable at under 11. Meanwhile, the price-to-book value -- an important metric when valuing insurance companies -- is 0.8 (a P/B below 1 is generally considered a compelling value).
While the stock yields a little over 2% in annual dividends, the real story is its massive share buyback plan. AIG recently announced the continuation of this policy, with the board approving repurchases of $2.5 billion in common stock.
AIG's total outstanding share repurchase authorization, including the announced $2.5 billion, is approximately $3.8 billion. And that's on top of the $4.7 billion of common stock it bought between January and May 2017 of this year.
Amazingly, when combined with AIG's admittedly modest dividend, the buybacks add up to a net payout yield of over 20%.
I also expect a growth wave to begin soon thanks to the new CEO, Brian Duperreault. Mr. Duperreault is a long-time veteran of AIG and the insurance industry. His focus on data science and analytics makes him the perfect candidate for accelerating growth into the future.
2. Corning (NYSE: GLW )
Corning is a material science company best known for creating a variety of glass-based products. While not as undervalued as AIG, the future appears bright, with Corning positioned to be a dominant supplier of smartphone and television screens for years to come.
Bullish recent news includes Apple's plan to invest $200 million in the company from its Advanced Manufacturing Fund. The Fund's focus is to promote technology-driven manufacturing jobs in the United States. Corning manufactures touchscreens for Apple's iPhones, and this investment further cements the company's relationship with the device giant.
Apple Chief Operating Officer Jeff Williams stated, " Corning is a great example of a supplier that has continued to innovate, and they are one of Apple's long-standing suppliers. The partnership started ten years ago with the very first iPhone, and today every customer that buys an iPhone or iPad anywhere in the world touches glass that was developed in America. We are extremely proud of our collaboration over the years, and we are investing further with Corning who has such a rich legacy of innovative manufacturing practices. "
Corning's adjusted revenues for the first quarter of 2017 were $2.49 billion, representing a 14% gain over the same quarter last year. Core EPS was 39% higher over the same period. The company expects that level of growth to continue into the rest of the year.
Like AIG, Corning boasts a very high net payout yield of over 16% when the buybacks and dividends are combined.
3. Nvidia (Nasdaq: NVDA )
This chipmaker leads the pack as the top performing S&P 500 stock of 2016. Shares are higher by an astounding 209%-plus over the last 52 weeks!
Riding the wave of the booming gaming chip business, Nvidia is no one-trick pony. The company has positioned itself as a favorite source for autonomous vehicle chips, with its customer Tesla leading the way. Demand for self-driving cars will only increase from today, powering the share price higher over the long term.
Despite offering a very low dividend payout, Nvidia plans to return $1.25 billion to shareholders this year. This could drive its already skyrocketing price even higher.
Risks To Consider: Stock buybacks are only effective in raising share price if the price remains unaffected by bearish sentiments. No one knows what troubles the rest of the year might bring to the market or these companies.
Action To Take: Consider these reliable, income-producing stocks for your portfolio. Remember that, though these companies have strong leadership and financials, there is still risk in any stock investment. Size your positions accordingly and use stops to protect yourself from losses.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
