Most visitors to our site come asking the same question: Which stocks have the highest dividends?
As most experienced income investors know, the stocks with the highest dividend yield don’t always provide the highest returns. These stocks can sometimes carry a lot of risk. When a dividend yield is far above it’s five year average there could be reason for concern.
It’s important to determine why the yield is so high. As a stock declines the yield increases as long as the dividend stays the same. But if a stock is on the decline there could be a good reason. That reason could lead to a dividend cut, which could lead to a further decline in the stock price.
I consider any stock with a dividend yield of 7% or more to be in the very high dividend class. While their fundamentals may not be a solid as dividend stocks with smaller yields, there are a few that deserve consideration.
1. Consolidated Communications (NASDAQ:CNSL)
CNSL is a telecom company that provides all the usual services to residential and businesses customers in Texas, Illinois and Pennsylvania. They provide high speed Internet, cable and a few other generic telecom services.
One of the first things we look at on high yield stocks is the payout ratio to determine how sustainable this yield may be. I’ve seen CNSL’s payout ratio reported at over 150 in a few places but in their earnings report for Q2 and Q3 their CEO Bob Curry has stated their payout ratio was 51% and 55% respectively.
Currently CNSL has a dividend yield of 8.4% which is well below their 5 year average of 10.3%. Their 5 year dividend growth rate is over 30%, 3 year income growth rate is over 40%. I consider Consolidated Communications to be one of the best investments in the telecom space along with Verizon (NYSE:VZ) and VVOD.
2. Annaly Capital Management (NYSE:NLY)
NLY is a diversified REIT that owns, manages and finances investment securities for the sole purposed of distribution income to investors. Annaly has gained a lot of attention for its big yield of 15.1%. REITs are required to pay out 90% of their income to investors so we aren’t concerned about the payout ratio (which is inline).
Annaly has a 5 year dividend growth rate over 20%, a 3 year income growth rate over 45% and a one year return of 9.5%. REITs have been hit hard lately. As Zvi Bar noted, the lower spread and leverage rates may indicate a dividend cut is coming soon. That shouldn’t change much long term as NLY will still have a strong yield and is approaching a very nice buying point.
3. Seadrill (NYSE:SDRL)
Last but certainly not the least, SDRL is an offshore drilling contractor that owns 54 offshore drilling units. Their drilling units are located all over the world in many different types of waters and depths.
Seadrill is one of the top rated stocks on our high yield stocks list. It has only been paying dividends since 2008 but its fundamentals are very strong. SDRL has a dividend yield of 7.4% with a 3 year income growth rate over 30% and a modest payout ratio of 55%.
Disclosure: I am long VZ.