The Highest Yielding Dividend Stock in 2021 is a Buy
By: Jonathan Wolfgram,
With a dividend yield of 24.2%, the highest-yielding dividend stock in 2021 is a buy with positive yearly returns and a growing customer base for its international shipping operation.
Frontline Ltd. (NYSE:FRO) is an international shipping company transporting crude oil and oil products through the Arabian Gulf, West African, North Sea and Caribbean. Its primary source of income is from its use of tankers to move large volumes of product, but Frontline also earns revenue via the purchase, resale and chartering of sea vessels.
The company is still small relative to the giants of the oil and gas midstream industry, with 84 employees and $1 billion in sales. However, with its projected growth in earnings and customer base, Frontline is a risky, albeit potentially lucrative, buy.
The Highest-Yielding Dividend Stock: Frontline’s Sales Fell But Are Expected to Rebound
Although the stock has seen a negative change in sales and earnings per share (EPS) over the trailing one-year period — dropping 24.2% and 41.8%, respectively — some of the Wall Street analysts covering Frontline have revised their earnings projections upward in the last month. With projected sales growth of 44.1% in the next year, analysts and institutional investors are becoming increasingly bullish about the shipping company.
The more notable projection is EPS, which analysts forecast will climb 520% in the next year, growing to more than six times its current value. This far exceeds the industry average expectation of 10.1%, while much of the oil and gas midstream industry struggles to recover from the COVID-19 pandemic.
Data provided by StockRover, start your free trial here.
Five analysts currently report on Frontline. One of them has issued a “strong buy” while the other four have maintained their “hold” rationale. Although the growth prospects of the company are highly attractive, it has performed poorly in the recent past and operates in a currently unstable industry and faces a fair amount of volatility.
The Highest-Yielding Dividend Stock: Frontline is the Most Efficient of its Peers
The shipping company reported a high net margin of 27.7% and a gross margin of 35.2%. What leads Frontline to excel above the rest of the industry, however, is its five-year average ranges for return on equity and return on assets — in these areas it sits in a far more sustainable position than many other companies with equally attractive margins.
Data provided by StockRover.
Equally notable are the valuation metrics when compared to other companies in its sector. Frontline sits in first place again, just surpassing Hess Midstream (NYSE:HESM) with a less expensive price-to-earnings (P/E) ratio and projected forward P/E ratio.
Data provided by StockRover.
This ranking shows long-term value in Frontline stock, making it a possible long-hold for price-conscious investors rather than just a high-growth stock to buy and sell.
The Highest-Yielding Dividend Stock: Frontline has a Dividend Yield of 24.2%
Frontline currently has the highest dividend yield of all stocks with positive one-year returns. Other stocks have been excluded from this screen — conducted using the Dividend Screener on DividendInvestor.com — due to their negative yearly returns partially inflating the dividend yield beyond the metric’s actual utility. Since dividend yield is a function of dividends paid over share price, a quickly falling share price will cause the dividend yield to look enticing at first glance before considering a company’s weakening condition.
As a result, we’ve opted to exclude those dividend stocks that show artificially inflated yields due to a plummet in a company’s value. Among companies with positive yearly returns — making the dividend yield “genuine” — none of Frontline’s peers come close to its massive 24.2% yield.
Data provided by StockRover.
Even among companies outside its industry, the next highest yield is Icahn Enterprises (NASDAQ:IEP) with a not-too-shabby 13.9%.
Note: Astute readers will notice the payout ratios for Frontline’s peers are all above 100%. For more information on this phenomenon and how companies can remain stable with payout ratios over 100%, read our article Why Do REITs Have High Payout Ratios?
There is a caveat to Frontline’s seemingly “too good to be true” dividend distribution: the company does not pay its dividend regularly. Rather, in times of high profit and high liquidity, Frontline rewards investors with high dividend payouts similar to how many companies pay special dividends.
In 2020, the shipping company paid a total of $1.60 throughout the year over three different distributions. In 2019, however, it paid a sole dividend of $0.10 in December. In 2018, the company paid no dividend at all.
Shown below is the company’s history for dividend distributions relative to stock price over the last 14 years. A big drop occurred in dividend payouts after 2007 and 2008, then again after 2010, 2011 and 2016. No dividend payouts occurred 2012- 2014.
Chart built using StockRover.
This uncertainty about future dividend payments also is what leads some analysts to maintain their “hold” rating. Bullish investors may view the EPS growth and profit increase in the near future as signs of increasing dividends Those more cautious will recognize the volatility of the industry overall alongside the lack of certainty in Frontline’s impressive dividends and choose to invest their money elsewhere.
With its large payout and incoming growth projections, the highest-yielding dividend stock in 2021 may be a worthwhile investment for dividend-hungry investors with the stomach to handle the risk.
3 Best Dividend Stocks to Buy Now
3 Dividend Growth Stocks to Buy Now
Top 10 Best Screening Tools for Investors
25 High Dividend Stocks in 2020 to Consider Buying
10 High Dividend Stocks Under $20
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.
Jonathan Wolfgram is an editorial staffer who writes website content at Eagle Financial Publications. He graduated from the University of Minnesota with Bachelor’s degrees in Finance and Philosophy. Jonathan writes for www.DividendInvestor.com and www.StockInvestor.com.