3 Top Dividend Stocks Yielding 5%-Plus
By: Ned Piplovic,
While choosing top dividend stocks is the highest priority for investors looking to add an income component to their investment portfolio, the selection process is more complex than merely picking a few stocks with the highest dividend yields.
The dividend yield is simply a ratio of total annual regular dividend distributions and the equity’s current share price. Therefore, higher dividend distributions advance the dividend yield and deliver higher dividend income payouts to the investor. However, by its definition, the dividend yield is inversely proportional to the stock price. Therefore, investors looking for dividend income must also verify that the high dividend yields are results of dividend hikes, not declining share prices.
The simplest metric to verify that share prices and dividends are rising is the total return over a specific time horizon. A total return that exceeds the dividend yield indicates that the share price has also risen over the same time frame.
While their current yields of more than 5% are significantly higher than the overall market average of approximately 2%, the three top dividend stocks on the list below also deliver additional metrics that indicate strong fundamentals and sustained growth potential. Each of the three top dividend stocks has been paying dividends for more than 25 years and has delivered annual dividend hikes for at least 15 consecutive years.
3 Top Dividend Stocks yielding 5%-plus: #3
PPL Corporation (NYSE:PPL)
Dividend Yield: 5.9%
Headquartered in Allentown, Pennsylvania, and founded in 1920, the PPL Corporation is a utility holding company that delivers electricity in the United States and the United Kingdom. The company provides electricity distribution services to more than 10 million retail customers in Pennsylvania, Kentucky, Virginia, Tennessee and the United Kingdom, as well as wholesale electricity distribution to 10 municipalities in Kentucky. In addition to the traditional utility distribution, PPL is the parent company of Safari Energy, LLC — one of the leading providers of solar power solutions for commercial customers in the United States.
PPL’s current $0.41 quarterly distribution has maintained a slow but consistent growth rate, averaging 1.7% growth every year in both the last three and ten years. This quarterly amount corresponds to a $1.66 annual dividend payout and a 5.9% forward dividend yield.
In addition to outperforming its own five-year dividend yield average, PPL’s current 5.9% dividend yield outperformed the 1.94% simple average dividend yield of the entire Utilities sector by more than 170%. Additionally, PPL’s current dividend yield also outperformed by more than 160% the 2% average yield of the Electric Utilities industry segment. Moreover, PPL’s current yield is also over 50% higher than the 3.55% average yield of the Electric Utilities segment’s only dividend-paying companies.
PPL has not missed a quarterly dividend payout since introducing dividend distributions in 1946. Furthermore, the company has boosted its total annual dividend distribution amount considerably over the past 20 consecutive years.
PPL’s current dividend payout ratio of 81.7% is higher than the 50% level generally accepted as the upper limit of the sustainable range for the overall market. However, considering that most stocks in the Utilities sector have a payout ratio between 65% and 70%, PPL’s current yield ratio not far above the the payout ratios of its peers. Therefore, PPL should have no trouble maintaining its current streak of consecutive annual dividend hikes over the near future to keep its place among top dividend stocks.
The company suffered a share price loss of 18.6% in the trailing 12-month period, causing investors to lose 12.7% of their initial investment. PPL has leveled out in the long-term, however, with three-year returns of 2.9% and five-year returns of 6.8%, not including dividend payments all the while.
3 Top Dividend Stocks yielding 5%-plus: #2
AT&T Inc. (NYSE:T)
Dividend Yield: 7.0%
Based in Dallas, Texas, AT&T, Inc. was founded in 1983 as the Southwestern Bell Corporation, which was one of the Regional Bell Operating Companies created by the regulatory breakup of the AT&T monopoly. The company operated as SBC Communications, Inc. for a decade before assuming its current name in November 2005. The current AT&T company provides communications and digital entertainment services through four business segments — Business Solutions, Consumer Mobility, Entertainment Group and International.
The company’s current $0.52 quarterly dividend distribution is level with its dividend payment 12 months ago. This distribution amount is equivalent to a $2.08 annualized amount and a 7.0% forward dividend yield, which is an improvement on the company’s own 5.36% average yield over the past five years.
Not only better than its five-year average, AT&T’s current 7.0% yield is over 700% higher than the 0.93% simple average yield of the overall Technology sector, as well as nearly triple the 2.62% average yield of the Domestic Telecom Services industry segment.
Tracing back through its past iterations and business entities, AT&T began paying dividends more than 135 years ago. Similarly, AT&T began its current streak of 35 consecutive annual dividend hikes in May 1984 when the company started paying dividends as the Southwestern Bell Corporation. However, just over the past two decades, AT&T more than doubled its total annual dividend payout amount, which corresponds to an average annual growth rate of 1.9%.
Analyst estimates rank AT&T’s dividend payments in 97th percentile for the telecommunications industry, making it the second most dividend-promising company in its entire sector. Its consistently high yield and gradual growth rate alongside its reliability as a dividend payer make the stock an excellent buy for investors.
While the financial crisis in March 2020 limited AT&T’s share price to a 16.7% loss, the company has positive returns of 12.5% over the last five-years.
3 Top Dividend Stocks yielding 5%-plus: #1
Omega Healthcare Investors, Inc. (NYSE:OHI)
Dividend Yield: 7.5%
Omega Healthcare Investors is a real estate investment trust (REIT) that finances sale, leaseback, construction and renovation of long-term health care facilities in the United States and the United Kingdom. When Omega Healthcare became listed on the NYSE in 1992, the company was one of the first publicly traded REITs that was explicitly structured to finance the sale, leaseback, construction and renovation of nursing and assisted living facilities. While OHI owns and leases more than 900 buildings, 69 third party operators manage the day-to-day operations at these facilities.
Omega Healthcare’s most recent distribution of $0.67 converts to a $2.68 annualized distribution amount. This total annual payout amount converts to a 7.5% forward dividend yield. This pushed the current yield above the company’s own 7% average yield over the past five years.
However, while trailing its own five-year yield average, Omega’s current yield is more than twice the 2.83% simple average yield of the overall Financial sector, as well as over 100% above the 3.37% average yield of the equities in the Healthcare Facilities industry segment. Furthermore, the REIT’s current yield also outperformed by 28% the 5.16% average yield of the segment’s only dividend-paying companies.
Over the past 17 years of consecutive annual dividend hikes, Omega Healthcare has enhanced its annual distribution 340%, which is equivalent to and average annual growth rate of nearly 10%. A significant dip in March 2020 limited the company’s one-year returns to a 10.5% loss, but the three-year returns are far more impressive, rewarding investors with 63.4% growth in capital appreciation alone.
Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.
In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.