Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

If you are considering a stock for its dividend income, it is important to have both a backward-looking and forward-looking perspective on its sustainability. Here we offer a list of seven stocks that appear to have sustainable dividends from both perspectives.

We began by searching for “dividend champions,” i.e. stocks that have consistently increased their dividend over the past 25+ years. From this universe, we then searched for those with enough TTM operating cash flow and TTM levered free cash flow to cover their annual dividend. (Note: All companies have dividend yields above 1%.)

Do you trust these companies to continue paying their dividends? Use this list as a starting-off point for your own analysis. List sorted by TTM operating cash flow per share / dividend per share.

1. AFLAC Inc. (NYSE:AFL): Accident & Health Insurance Industry. Market cap of $23.55B. Dividend yield at 2.38%, with a payout ratio of 25.92%. TTM Operating Cash Flow at $7.88B, or $16.85 on a per-share basis (vs. annual dividend per share at $1.20, TTM Operating Cash Flow per share / annual dividend per share stands at 14.04). TTM Levered Free Cash Flow at $3.09B, or $6.61 on a per-share basis (vs. annual dividend per share at $1.20, TTM Levered Free Cash Flow per share / dividend per share stands at 5.51).

2. Target Corp. (NYSE:TGT): Discount, Variety Stores Industry. Market cap of $34.66B. Dividend yield at 1.99%, with a payout ratio of 22.57%. TTM Operating Cash Flow at $5.27B, or $7.60 on a per-share basis (vs. annual dividend per share at $1.00, TTM Operating Cash Flow per share / annual dividend per share stands at 7.6). TTM Levered Free Cash Flow at $3.81B, or $5.50 on a per-share basis (vs. annual dividend per share at $1.00, TTM Levered Free Cash Flow per share / dividend per share stands at 5.5).

3. Lowe's Companies Inc. (NYSE:LOW): Home Improvement Stores Industry. Market cap of $32.67B. Dividend yield at 1.78%, with a payout ratio of 30.68%. TTM Operating Cash Flow at $3.85B, or $2.92 on a per-share basis (vs. annual dividend per share at $0.44, TTM Operating Cash Flow per share / annual dividend per share stands at 6.63). TTM Levered Free Cash Flow at $2.52B, or $1.91 on a per-share basis (vs. annual dividend per share at $0.44, TTM Levered Free Cash Flow per share / dividend per share stands at 4.34).

4. Walgreen Co. (NYSE:WAG): Drug Stores Industry. Market cap of $40.49B. Dividend yield at 1.58%, with a payout ratio of 27.52%. The stock has gained 37.87% over the last year. TTM Operating Cash Flow at $4.03B, or $4.40 on a per-share basis (vs. annual dividend per share at $0.70, TTM Operating Cash Flow per share / annual dividend per share stands at 6.29). TTM Levered Free Cash Flow at $2.45B, or $2.68 on a per-share basis (vs. annual dividend per share at $0.70, TTM Levered Free Cash Flow per share / dividend per share stands at 3.82).

5. Exxon Mobil Corporation (NYSE:XOM): Major Integrated Oil & Gas Industry. Market cap of $405.57B. Dividend yield at 2.28%, with a payout ratio of 24.99%. The stock has gained 39.83% over the last year. TTM Operating Cash Flow at $52.22B, or $10.59 on a per-share basis (vs. annual dividend per share at $1.88, TTM Operating Cash Flow per share / annual dividend per share stands at 5.63). TTM Levered Free Cash Flow at $19.45B, or $3.95 on a per-share basis (vs. annual dividend per share at $1.88, TTM Levered Free Cash Flow per share / dividend per share stands at 2.1).

6. ABM Industries Inc. (NYSE:ABM): Business Services Industry. Market cap of $1.25B. Dividend yield at 2.37%, with a payout ratio of 48.11%. TTM Operating Cash Flow at $160.07M, or $3.02 on a per-share basis (vs. annual dividend per share at $0.56, TTM Operating Cash Flow per share / annual dividend per share stands at 5.39). TTM Levered Free Cash Flow at $73.66M, or $1.39 on a per-share basis (vs. annual dividend per share at $0.56, TTM Levered Free Cash Flow per share / dividend per share stands at 2.48). The stock is a short squeeze candidate, with a short float at 8.19% (equivalent to 15.33 days of average volume). The stock has gained 16.96% over the last year.

7. WGL Holdings Inc. (NYSE:WGL): Gas Utilities Industry. Market cap of $2.02B. Dividend yield at 3.93%, with a payout ratio of 60.51%. TTM Operating Cash Flow at $403.24M, or $7.87 on a per-share basis (vs. annual dividend per share at $1.55, TTM Operating Cash Flow per share / annual dividend per share stands at 5.08). TTM Levered Free Cash Flow at $161.66M, or $3.16 on a per-share basis (vs. annual dividend per share at $1.55, TTM Levered Free Cash Flow per share / dividend per share stands at 2.04). The stock is a short squeeze candidate, with a short float at 6.46% (equivalent to 16.25 days of average volume). The stock has gained 20.22% over the last year.

Dividend champions sourced from DRiP Investing; dividend yield and payout ratio sourced from Reuters; operating cash flow, levered free cash flow, and dividend per share sourced from Yahoo Finance; all other data sourced from Finviz.

Source: Top 7 Dividend Champions With Excellent Dividend Coverage