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.
Furthermore, in line with the thinking that total return must exceed the dividend yield, all three equities listed below have rewarded shareholders with a total return of at least 12% during the trailing 12-month period.
3 Top Dividend Stocks yielding 5%-plus: #3
PPL Corporation (NYSE:PPL)
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 $0.4125 quarterly distribution is 0.6% higher than the $0.41 payout one year earlier. This new quarterly amount corresponds to a $1.65 annual dividend payout and a 5.24% forward dividend yield, which is 9.6% above the company’s own 4.78% five-year average yield.
In addition to outperforming its own five-year dividend yield average, PPL’s current 5.24% 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 47% 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 over the past 20 consecutive years. Over the past two decades, the company enhanced its total annual dividend payout 230%, which is equivalent to a 6.5% average annual growth rate.
PPL’s current dividend payout ratio of 68% is slightly 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 is in line with 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 asset appreciation and dividend income contributed almost equally to the company’s total return of nearly 12% over the trailing 12-month period. A year-long share price pullback that began in mid-2017, suppressed the tree-year total return below 5%. However, over the last five years, PPL shareholders enjoyed a total return of nearly 30%.
3 Top Dividend Stocks yielding 5%-plus: #2
AT&T Inc. (NYSE:T)
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 $0.51 quarterly dividend distribution is 2% higher than the $0.50 quarterly payout from the same period the previous year. This new distribution amount is equivalent to a $2.08 annualized amount and a 5.4% forward dividend yield, which is in line with the company’s own 5.36% average yield over the past five years.
While in line with its own five-year average, AT&T’s current 5.4% yield is 480% higher than the 0.93% simple average yield of the overall Technology sector, as well as more than twice the 2.62% average yield of the Domestic Telecom Services industry segment. Additionally, the current 5.4% yield is also 45% higher than the 3.73% simple average yield of only dividend-paying companies in 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 34 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 3.8%.
While a share price decline in 2017 and 2018 limited the three-year total return to less than 7%, a share price rebound elevated the total return over the last 12 months to nearly 18%. Over the last five years, this top dividend stock delivered a 35% total return to its shareholders.
3 Top Dividend Stocks yielding 5%-plus: #1
Omega Healthcare Investors, Inc. (NYSE:OHI)
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 $0.66 converts to a $2.64 annualized distribution amount. This total annual payout amount converts to a 6.32% forward dividend yield. Despite the rising dividend distributions, the rapidly rising share price pushed the current yield approximately 8% below 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 nearly 90% above the 3.37% average yield of the equities in the Healthcare Facilities industry segment. Furthermore, the REIT’s current yield also outperformed by 22% the 5.16% average yield of the segment’s only dividend-paying companies.
Over the past 16 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 steady share price decline between 2015 and 2018 limited the five year total return to slightly more than 55%. The total return over the past three years was just shy of 40%. However, the share price resurgence since April 2018 delivered a total return of 36% just over the trailing 12 months. This level of return makes the Omega Healthcare Trust one of the top dividend stocks overall.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.