By Matthew Kloster
In economic times like these, safe dividend stocks that produce high yields are good buys. This segment of the investment sphere allows you to get a slight return on investment and wait for the market to heat up again. A good place to start looking for stocks like these is to find large-cap companies that have given decent, consistent dividends for years. These companies will offer a much safer investment than trying to predict the rise and fall of stock prices in a manic market. Dividends are indicative of how much cash the company has on hand, so a company with a lot of cash can sustain dividend payments in the short term. Dividends are paid with cash, not earnings or income. To truly find a great dividend stock, a company must have stable earnings stemming from competitive advantages in the industry to keep this cash coming in. A good metric to judge a company on is ROA since it includes cash in the equation. ROA can tell how good a company is at turning its investments into profit. Below is a compiled list of companies that fit these criteria.
Altria Group, Inc. (NYSE:MO): When people decide not to invest in Altria it generally comes down to not agreeing with its business of selling cigarettes and smokeless tobacco, but if you can get past this and invest on purely the numbers, it is a great stock to own. While it did not have a strong second quarter, EPS did increase by 6% over the second quarter last year. This is not a high growth stock or a stock to grab for the short, so the reports from one quarter should not have a huge impact. The company has a solid operating margin at almost 40% and a payout ratio of 78.8% and an ROA of 10.95%. People buy Altria for the 5.6% dividend yield and the returns it produces over a long period of time. MO is basically a huge player in a stagnant market that gives its cash out to investors. Buy this stock knowing that it will not grow much, if any, and reap the benefits of the high yield.
The Procter & Gamble Company (NYSE:PG): Providing consumer packaged goods for over 170 years, Procter & Gamble has a large market cap of $180 billion and has traditionally paid a decent dividend to its shareholders. It also carries a yield of 3.3% and a payout ratio of 55.3%. The operating margin sits at 19.2% and quarterly revenue growth at 5.5%. One of the important metrics for dividend stocks is ROA, which at Procter & Gamble sits at 7.18%. This company will not excite most people, but the numbers assure a long term hold will pay off in the future based solely off the safety of the dividend returns.
Wal-Mart Stores, Inc. (NYSE:WMT): The king of value retail stores, Wal-Mart has perfected the idea of everything in one place at a cheap price. The stock is not volatile at all and will not make investors much money in the short term, but like most stocks on this list, it produces a solid dividend every year. It boasts a market cap over $189 billion and a P/E of 11.9. Wal-Mart also boasts an ROA of 8.91%. This is the type of stock you buy and keep money in that you cannot afford to lose while getting a solid 2.7% yield. The payout ratio of 31.9% is not jaw-dropping, but at the same time is not terrible. This continues to be one of the safest dividend stocks for a value investor, including Warren Buffett. Some people are, however, turning toward competitor Target (NYSE:TGT) and its slightly lower yield of 2.3% based on its growth prospects.
AT&T Inc. (NYSE:T) boasts one of the highest dividend yields on this list at 5.7% and has increased revenue growth from last year by 2.3%. It is one of the main cellular phone and internet providers in the U.S. and has been cashing in on Apple’s (NASDAQ:AAPL) iPhone since its release several years ago. Quarterly earnings growth is up 38.9% and still maintains a very solid operating margin at 18.9%. The fear of losing a large percentage of its customer base to Verizon (NYSE:VZ) once it got the iPhone has subsided and the future looks bright with the possible acquisition of T-Mobile. It does, however, have a slightly lower ROA at 4.55% than other companies on this list. AT&T also has a low price to earnings ratio of 8.64 and a PEG of 3.39. The price of this stock is not expected to move much in the coming year above its current price of $30.28, but it is a good long term buy for dividend hunters.
Verizon Wireless is the all-around best cellular company in the United States, offering more coverage than any other company and some of the best phones. It offers a P/E of 30.06 and an EPS of 1.25. The company also has an operating margin of 17.32% and an ROA of 5.07%. Verizon has seen an enormous growth in earnings of 224.8% over the same quarter last year and has $14.73 billion in cash and $61.2 billion in debt. It's slowly growing and the price will not change drastically in the coming months, but the dividend ratio of 5.3% is a good enough reason for people to invest. The only complaint investors have is Verizon’s payout ratio, which may lead some to believe the current dividend yield is unsustainable. However, even if the dividend rate declines, this will still be a good stock to pick up on a valuation basis. It shows no signs of losing market share or losing revenue and its network offers a competitive advantage to keep the dividends high. Buy Verizon and go long to cash in this good dividend stock.
AstraZeneca PLC (NYSE:AZN): A top healthcare company, AstraZeneca pays a great dividend yield of 7.6% and a generous payout ratio of 64.7%. It has a decent P/E of 5.72 and an ROA of 15.85%. The company also sports an operating margin of 41.75%. By these numbers, AstraZeneca is one of the most attractive dividend stocks on this list. It carries $10.78 billion in cash and $9.59 billion in debt with a healthy 4.7% quarterly earnings growth rate. However, it did experience a 3.3% drop in quarterly revenue growth from last year. The overall consensus outlook on AstraZeneca is a hold rating, but it is still a good buy for a dividend investor with great returns and a good ROA.
BP Prudhoe Bay Royalty Trust (NYSE:BPT) holds royalty interests in minerals in the Prudhoe Bay oil field in Alaska. The remaining reserves are estimated to be 78.28 million barrels of oil. Being a trust, it must distribute almost all profits as dividends to investors which accounts for the 99.4% operating margin and 4,434.5% ROA. The company also has $1.04 million in cash with $0.00 in debt and a quarterly earnings growth of 4.1%. The eye-catcher with this company is the 9.3% dividend yield. A long term investment with that yield is incredible, but the payout ratio concludes it may not be able to continue this high payout. Regardless, with this trust the payout will always be high and this seems to be one of the safest, high yielding trusts on the market.
The Coca-Cola Company (NYSE:KO) is the world’s premier soft drink manufacturer and one of the safest places to put your money in the stock market. While the dividend yield is 2.7%, it has an operating margin of 24.2% and ROA of 9.34%. Coca-Cola has also experienced quarterly revenue growth of 39.8% and quarterly earnings growth of 17.7% from last year. The total cash of the company is $12.28 billion and debt sits at $26.22 billion. The stock price is targeted to grow at 8.8% over the next year. Coca-Cola holds competitive advantages over the rest of the market that enables it to keep this growth trend and raise dividends in the future. The payout ratio is an acceptable 36.2% and very few negatives surround the company in the future. While the price growth may not be extreme it is enough to render the company a buy and reap the benefits of a solid dividend without limited risk.
Johnson & Johnson (NYSE:JNJ) produces products for the healthcare field and currently holds a dividend ratio of 3.4%. While not astounding, it is definitely high enough to buy, given the strength of the company. It has a price to earnings of 15.07 and EPS of 4.41. The ROA is a strong 10.15% with an operating margin of 26.33%. It currently has $26.87 billion in cash and $17.83 billion in debt. The forward P/E is 12.64 with a PEG of 2.7. While not the best buy on this list, it is a strong dividend-producing stock. It has, however, experienced a drop in quarterly earnings with an increase in quarterly revenue. This would not be my first choice on this list to buy, but it will nonetheless give the buyer a good long term return without a lot of apparent risk.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.