One Of The Most Innovative Companies On The Planet
Despite having a corporate lineage that pre-dates the Civil War, one of my recent High-Yield Investing picks isn’t exactly a household name.
But odds are good one of the firm’s products is within arm’s reach of you right now.
Make no mistake. Corning is one of the most innovative companies you’ll find. Pound for pound, it plows twice as much cash into research and development (R&D) as its rivals – efforts that are rewarded at the patent office.
In fact, you may have its ceramic cookware in your kitchen. Its specialized glass could be in your car’s windshield. And if you ever dropped your mobile phone and it didn’t crack, you can probably thank this company.
The company is credited with manufacturing the first light bulb for Thomas Edison over a century ago. And when NASA needed to find the most advanced glass on the planet for the space shuttle, it called on these guys…
If you haven’t guessed by now, I’m talking about Corning (NYSE: GLW).
Innovating Circles Around The Competition
Corning has five distinct operating segments that encompass everything from vehicle pollution control systems (diesel particulate filters) to genomics laboratory equipment. Its cutting-edge manufacturing facilities utilize advanced (and proprietary) techniques that competitors have tried and failed to duplicate. The company set the standard with display surface glass that is thin and light, yet extremely durable and scratch-resistant. This glass goes to manufacturers in Asia and elsewhere for final assembly into high-resolution LCD television screens.
Corning’s talented design team has pioneered many industry innovations over the years, including a high-performance glass substrate engineered for organic light-emitting diode (OLED) displays installed in high-end smartphones and tablets.
The crown jewel is Gorilla Glass. This breakthrough product is highly sensitive (important for touch-screen applications), yet extremely strong and almost impervious to normal wear and tear. Just about every major manufacturer finds that rare combination of attributes quite attractive.
That’s why you’ll find Gorilla Glass inside hundreds of different consumer electronics products spanning dozens of the world’s largest brands. If you’ve ever owned a Sony Bravia TV, a Samsung Galaxy tablet, a Dell laptop computer, or a Motorola DROID phone, then you’ve come in contact with this specialty glass.
Since its creation, it has been installed in more than 6 billion portable devices.
Gorilla Glass has been a mainstay fixture in the iPhone since it was first launched in 2007. And just like the circuitry inside, the glass gets more advanced with each new model. The latest generation (No. 6) was tested for durability and found to have twice the survival rate as Gorilla Glass 5 when dropped repeatedly.
If that wasn’t enough, consider that Corning also invented the modern fiber optic cables that facilitate broadband Internet connectivity. These are the backbone conduits that transmit Netflix shows and YouTube videos and countless other gigabytes of data streaming each day. There are 113,000 miles of these cables in the United States – enough to stretch around the globe almost five times.
Yet, we’re going to need far more to provide coast-to-coast 5G network connectivity.
One Of The Most Shareholder-Friendly Companies On The Planet
When I first started covering Corning back in 2014, the company was generating about $8 billion in annual sales and spitting out more than $1 billion in free cash flow. And right there on page one, line one, of the investor presentation was a bullet point indicating what management planned to do with it.
Return more cash to stockholders.
At that point, the dividend had already increased by 100% over the prior 24 months. The board had also invested $2 billion in stock buybacks, eliminating more than 13% of the outstanding shares.
Fast-forward to today. Corning has tacked on nearly $4 billion to the top-line, raking in $11.7 billion in revenue last year. Even more impressive, it has accomplished that despite operating headwinds and sluggish demand in some end markets.
Case in point, the Environmental Technologies unit shrugged off softer auto sales to report a healthy 16% revenue increase last year. The Specialty Materials division posted an 8% uptick, even though smartphone unit volume dropped 3% over the period.
Both are indicative of market share gains.
Corning just released a series of new long-term targets and objectives for 2020-2023. Among other goals, the company is shooting for 6% to 8% annual sales growth and 12% to 15% earnings growth.
Over these four years, it intends to funnel at least $10 billion into the R&D department to maintain its lead and commercialize new products. Yet, management will also dutifully return cash to investors. The company is anticipating annual dividend growth of “at least” 10% over the forecast period.
That would lift the current quarterly payout from $0.22 to $0.32 per share, or $1.28 annually. Including share repurchases, Corning expects to deliver between $8 billion and $10 billion to investors by 2023. Let’s be conservative and use the lower end of that range, which would be approximately $2 billion per year.
This is a mid-size business, with a market value of $16 billion. These projected capital returns equate to a total yield (dividends plus buybacks) of 12.5%. That’s enough to keep pace with the market most years, without the stock advancing a single penny.
Action to Take
Like any industry, this one has certain risks that should be considered. For instance, LCD glass prices have generally been on the decline. And sales volume can be choppy as global customer inventories sometimes get overstocked and must be whittled down.
But there are even bigger growth catalysts on the horizon. Not the least of which are fiber deployments for 5G networks and hyperscale data centers. I also see more applications for glass infused with antimicrobial properties (now more than ever). And rugged glass for auto windshields is another growing market.
Yet, with little change in the long-term fundamentals, GLW stock has tumbled from $34 (a 52-week high) to $20 (a four-year low) in a matter of weeks. This has created a rare opportunity to buy one of the most innovative companies on the planet at a time when it yields nearly 4.5%.
And while GLW is still a “buy” at today’s prices, it’s just one of the many high yields I’m finding in this market…
The Covid-19 selloff has created a once-in-a-generation opportunity in the market. There are a lot of securities offering high yields in today’s market, but they won’t last long.
If you’re looking for a way to earn higher yields in this low-rate market, then I invite you to check out High-Yield Investing. Why settle for 2% yields offered by the average S&P 500 stock when you could be earning 7%, 8%, even 10% or more from the safe, reliable picks my team and I find every month? To learn more, go here.