5 Large-Cap Stocks with High Dividend Payout Ratios
By: Ned Piplovic,
Income-seeking investors generally hunt for large-cap stocks with the highest yields to maximize their dividend income flow. However, because high yields often represent outsized risks or financial troubles, investors also should consider other measures of financial performance, such as the Dividend Payout Ratio.
The dividend payout ratio represents the total amount of dividend distributions paid to shareholders relative to the company’s total earnings or net income. Generally, a low dividend ratio indicates that the company has enough earnings to support future dividend distributions or sustain a rising dividend payout policy, which investors value highly. Alternatively, a high payout ratio is a sign that the company is providing most of its earnings as dividends and that even a minor financial hiccup could force a reduced dividend distribution or eliminate the dividend distributions outright.
A payout ratio above 100% would be acceptable only if earnings are lower than expected or negative for a short period because of an unusual event like an unplanned acquisition, a lawsuit judgment or a natural disaster. Otherwise, a company must dip into other funding sources to cover the excess distributions above 100% of earnings.
Generally, a dividend payout ratio of approximately 30% to 50% indicates that the company provides sustainable dividend distributions and retains sufficient funds to support its operations and finance expansion activities.
The list below includes five major companies with a market capitalization of more than $10 billion, four of whom have current dividend payout ratios in excess of 80%. While all five companies have delivered asset appreciation and rising dividend payouts for at least the last five years, the high payout ratio raise some concerns regarding the ability of these businesses to maintain their streaks of consecutive dividend boosts going forward.
Below are large-cap stocks with high dividend payout ratios.
5 Large-Cap Stocks with High Dividend Payout Ratios: #5:
The Coca-Cola Company (NYSE:KO)
Market Capitalization: $216 billion
Dividend Payout Ratio: 84%
While above the 50% upper limit of the sustainable range, the current 84% payout ratio is below the 175% five-year average and significantly below the 270% very high dividend payout ratio from just slightly more than two years ago. Despite the high dividend payout ratio, the Coca-Cola Company has maintained its record of boosting annual dividend payouts for the past 58 consecutive years. The company’s most recent boost was a 2.5% hike in the first quarter of 2020. This increase brought the annualized dividend amount to $1.64, which currently yields 3.3%.
The dividend yield has declined recently but that the yield decline thankfully resulted from steady asset appreciation. While dipping in March 2020, the share price has risen steadily since then to a $50.29 closing price on January 11, 2021. Although the company is still negative in its returns for the trailing 12 months — down 6% — in the last three years it was returned more than 20%, and in the last five, nearly 48%.
5 Large-Cap Stocks with High Dividend Payout Ratios: #4
Extra Space Storage, Inc. (NYSE:EXR)
Market Capitalization: $14.5 billion
Dividend Payout Ratio: 106%
The company’s current 106% payout ratio might seem a reason to raise concern among investors. However, as a self-administered and self-managed real estate investment trust (REIT), Extra Space Storage must distribute at least 90% of its annual earnings as dividend distributions to maintain its favorable status and carry zero corporate income tax liability. The current payout is in line with the company’s 108% five-year average.
While the high dividend payout ratio might appear to be a sign of trouble, analysis of the company’s other financial and performance measures, offers a significantly more positive outlook. The company has boosted its annual dividend distribution amount for the past 11 consecutive years, Over that period, the annual distribution amount advanced more than nine-fold — in the last five years alone, the dividend growth has averaged 8.8% per year.
Furthermore, the share price has climbed 8.2% in the trailing 12 months, and when factoring in dividend distributions, Extra Space Storage has returned more than 11.5% to its investors. Additionally, shareholders enjoyed total returns of 49.1% and 47.4% over the last three and five years, respectively.
5 Large-Cap Stocks with High Dividend Payout Ratios: #3
ONEOK, Inc. (NYSE:OKE)
Market Capitalization: $18.2 billion
Dividend Payout Ratio: 256.6%
ONEOK’s current high dividend payout ratio of might look like sign of potential troubles. However, with a 169% payout ratio average over the last five years, its current payout ratio appears to be tolerable. Much of this high payout ratio has come from ONEOK suffering a particularly brutal trailing 12 months.
In the last year, ONEOK’s share price dropped just under 40%, nearly all of which occurred in March 2020 when the United States was beginning to feel the economic effects of COVID-19. Despite this critical dip however, the company has still returned 147.8% in the last five years, a significant gain for long-term investors.
The company has offered dividend distributions since 1939 and has hiked its annual payout 18 times in the past two decades. This includes the current streak of uninterrupted consecutive annual hikes over the past 18 years, indicating a degree of financial stability despite the share price plummet. This could be an excellent opportunity for investors to capitalize on OKE’s low price and begin a promising long-hold.
5 Large-Cap Stocks with High Dividend Payout Ratios: #2
Mid-America Apartment Communities, Inc. (NYSE:MAA)
Market Capitalization: $14.1 billion
Dividend Payout Ratio: 142.5%
Mid-America Apartment Communities focuses on ownership, management, acquisition and development quality apartment communities in the Southeast, Southwest and Mid-Atlantic regions of the United States.
As another REIT on this list, MAA must distribute most of its earnings to enjoy the tax benefits. But, unlike the 106% payout ratio by Extra Space Storage that is only slightly higher than 100%, MAA’s payout ratio is significantly higher. The 142.5% payout ratio indicates that MAA currently pays out as dividend distributions nearly 50% more that its total earnings. However, the company’s five-year payout average is 136%, which is still high but closer to the acceptable range and far more stable than the 169% payout it held just one year ago.
MAA’s other metrics are favorable and indicate that investors ought to monitor the high dividend payout ratio for signs of long-term advancement and enjoy existing returns. Although they were only 1% in the trailing 12 months after adjusting for dividends, the company’s three and five year returns are much more favorable at 46.5% and 63.3%, respectively.
5 Large-Cap Stocks with High Dividend Payout Ratios: #1
The Procter & Gamble Company (NYSE:PG)
Market Capitalization: $342.5 billion
Dividend Payout Ratio: 56.8%
The current payout ratio of 56.8% is close to the normal range, but notable on this list due its status last year, when its payout ratio was well over 100%. Aside from the current dividend payout ratio, Procter & Gamble’s operational and financial performance offers an image of stable growth company with steady long-term returns. The company has paid a dividend since 1891 and has boosted its annual distribution for the past 66 consecutive years, making it a member of the Dividend Kings — a prestigious group of companies that have increased their dividend payout every year for over 50 consecutive years.
In addition to the rising dividend income payouts, the company’s share price more than doubled over the past five years and advanced 14.2% just over the past 12 months. With extraordinary asset appreciation and steady dividend growth, the company’s shareholders enjoyed total returns of 16.5% over the past year and 66.5% over the past three years.
A high dividend payout ratio is generally a warning sign that the company might have to cut or eliminate dividend distributions altogether. However, investors should consider whether the high payout ratio is the only negative indicator among positive signs that otherwise show the security in a favorable light. In each of the stocks on this list, investors should keep an eye on the payout ratio to ensure that the situation is improving to be able to enjoy the rewards of total returns from these five securities.
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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.