The 5 Highest-Paying Dividend Stocks – Too good to be true?
By: Ned Piplovic,
The highest-paying dividend stocks would be much easier to select if investors could just search for and buy the top handful of companies from a credible list that clearly identified them.
Investors certainly can enhance their total returns by purchasing stocks that pay high dividends, especially in equities that also are rising in share price. However, investing in securities based solely on a single factor, such as a high dividend payout, could be too good to be true and may lead to significant losses.
Therefore, investors should consider additional factors to ensure that the highest-paying dividend stocks also have additional investment-worthy characteristics.
A company’s dividend yield is a good first step in the search for the highest-paying dividend stocks. A dividend yield is simply the ratio of the annual dividend payout per share and the company’s current share price. However, a high or even rising dividend ratio might not be a positive indicator that the security is a contender. A sharply falling share price will result in fast-rising dividend yield, which is not a good sign.
A better indicator is a total return over the past 12 months, as well as the past several years. The total return measures the total increase of the combined share price growth and all dividend distributions paid out over a particular period above the starting share price for a particular period.
Another important indicator that investors may want to check is a stock’s dividend payout ratio, which indicates what share of a company’s net earnings is distributed as dividends. A low dividend payout ratio – no more than 50% – indicates that a company’s net earnings are sufficient to cover the dividend payouts, at least over the near term.
To illustrate that stocks with high dividend yields might not be automatically the highest-paying dividend stocks worthy of investor consideration, I used the Dividend Screener available at DividendInvestor.com, to reveal the five large-cap companies – at least $10 billion – with the highest dividend yields. However, while some have the supporting attributes to qualify as potentially good investment choices, other stocks, indeed, are too good to be true.
The following five stocks offer investment ideas worthy of weighing. Each of the companies
The 5 Highest-Paying Dividend Stocks: #5
Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA)
With a 9.3% dividend yield, the first security on this fivesome initially seems very promising. Unfortunately, the company has cut its annual dividend distribution five times in the past seven years. Furthermore, the company’s share price has been declining for more than one year. With both of these indicators declining, the company delivered to its shareholders a total loss of more than 26% just over the past 12 months. The longer-term total losses were slightly lower at 17% for the past three years and 18% for the past five years. Banco Bilbao Vizcaya Argentina SA will distribute its second and final semi-annual dividend in late October with an early-October ex-dividend date.
The 5 Highest-Paying Dividend Stocks: #4
Icahn Enterprises LP (NYSE:IEP)
While IEP’s 9.6% dividend yield is just slightly higher than the previous entry, the company’s share price has been rising for more than a year before a recent pullback, which could turn out to be a buying opportunity for bargain hunters. After three years of flat $6 annual dividends, Icahn Enterprises LP will pay a higher total annual dividend of $7 in 2018, which is just 3.4% short of the company’s highest dividend yield of 7.25% over the past decade. Additionally, the company’s 53% total return over the past year is significantly better than its 34% over the past three years and 37% total return over the past five years. Icahn Enterprises LP’s next ex-dividend date should occur in early to mid-November.
The 5 Highest-Paying Dividend Stocks: #3
Energy Transfer Partners LP (NYSE:ETP)
Energy Transfer Partners LP’s 9.9% dividend yield is approaching double-digit territory. Additionally, a streak of 15 annual dividend hikes supports that yield figure. Over those 15 years, the company managed to increase its total annual dividend nearly 10-fold and achieved an average growth rate of more than 15% per year. Also, ETP’s current yield is 41% higher than the company’s own average yield over the past five years. While the company’s five-year total return is virtually non-existent and the total loss over the past three years exceeds 10%, its one-year total return is almost 30%. Energy Transfer Partners LP’s next ex-dividend date should occur in early November.
The 5 Highest-Paying Dividend Stocks: #2
CenturyLink, Inc. (NYSE:CTL)
In addition to the first double-digit yield on this list, CenturyLink offers investors additional positive indicators that this security could be a profitable choice. After its only dividend cut in the past two decades, the company has been paying steady dividends over the past six years. Additionally, the company’s share price reversed a three-year-long downtrend and has nearly doubled since November 2017. The effect of this share price growth is that the company’s five-year total loss of approximately 1% became a 7% total return for the past three years and ultimately an 18% total return over the past 12 months. The company went ex-dividend at the end of August and is expected to declare an ex-dividend in late November for the fourth-quarter dividend payout in mid-December.
The 5 Highest-Paying Dividend Stocks: #1
Annaly Capital Management, Inc. (NYSE:NLY)
Because of a 20% share price drop during the first half of the trailing 12 months, Annaly Capital Management delivered a total loss of 3% over the past year. However, the share price has been rising steadily since the beginning of February 2018 and appears poised to continue its uptrend into the near term. A continued asset appreciation could return Annaly Capital Management’s total return to levels similar to approximately 45% that the company experienced over the past three and five years. Furthermore, Annaly Capital Management’s current 11.2% dividend yield is 3.7% higher than the company’s own 10.9% average yield over the past five years. However, most importantly, the company managed to bring its payout ratio under control. Annaly Capital Management is the only company in this group of the five highest-paying dividend stocks that has a dividend payout ratio in the sustainable range below 50%, which is a significantly better indicator that the company should be able to support the continued dividend distributions than the company’s highly unsustainable average payout ratio of 252% over the past five years.
5 Highest-Paying Dividend Stocks: Conclusion
The process to select highest-paying dividend stocks is not simple. However, it is also not overly complex, nor does it require professional assistance. Investors can acquire the knowledge and a few simple tools to analyze equities and determine which investments are most likely to yield outsized returns over the near term.
Short-term investors, day-traders, flash traders and other institutional investors must engage in complex market analysis because the type of investing that they perform allows minimal tolerance for error. However, individual investors whose investment goals involve longer term horizons can perform their analyses by assessing just a few simple indicators, such as total returns, dividend payout ratios, share price and share-price trends to select the highest paying dividend stocks that best fit a person’s own investment strategy.
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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.