Stocks yielding high dividends and posting historical dividend performance are sure to be on the radars of investors looking for dividend income. However, there are additional metrics to take into consideration when assessing dividend stocks and whether or not the dividend is sustainable. I screened all dividend payers yielding 5% and above with a positive forward EPS and below industry-average price to earnings ratio. Of those results, for dividend income in 2012, I like Nokia, Annaly Capital Management, Chimera Investment Corporation, Telefonica, Frontier Communications Corporation, and France Telecom due their high dividend yields.
In this article, I will explain why investors should be most interested in Telefonica as their dividend income stock for 2012.
Telefonica (TEF) is a global leader in the telecommunications sector and has seen a significant increase in its market share in the Spanish and Portuguese speaking market. In September of 2011, TEF became the leading operator in Brazil, Argentina, Chile, and Peru, and has made its presence known in a myriad of other Central and South America countries. TEF has experienced an increase in the bottom line over the past three years and experienced an increase in customer contracts in 2011, up 6.2% from 2010. TEF is outperforming its competition in the price to earnings metric with a ratio of 14.14, above the industry average of 11.95. TEF has historically paid a dividend to shareholders and its executives have announced its dividend policy for the remainder of the year and for 2013 and the program will consist of its consistent dividend and a share buyback program will also be implemented. With the expansion of TEF into Central and South America, as well as its increased market share in these regions, there are many reasons for investors to get excited about this company. Strong financial data and the prospects for growth lead me to suggest that Telefonica is a good bet as a dividend stock and will provide long-term success for investors.
With more than 1.3 billion people uses their products around the world, Nokia Corporation (NOK) has become one of the global leaders in mobile communications. In the most recent quarter, NOK experienced a 3% decline in net sales from the second quarter and net sales were down 13% from the third quarter of 2010. Net cash and liquid assets, however, were up 16% from the last quarter and up 30% from the third quarter in 2010. The decline in net sales is disheartening for investors but the extra cash on hand is promising that NOK will be able to maintain its dividend yiled of 9.9% and it has the potential to increase it in years to come. NOK management stated in its third quarter report that there have been crucial structural changes implemented during the third quarter that will ensure the long-term success of the company. An example is the recent increased market share of dual SIM devices in India and the increased shipment of such devices all together. Also, NOK management has announced structural changes in manufacturing, as well as location and commerce. I believe that with the recent increase in cash on hand, the structural changes being implemented for future success, and the increased market share experienced in the third quarter, NOK is doing the right things to insure investors that their dividend yield is dependable and that is will continue to perform in the future.
Annaly Capital Management (NLY) is a REIT that specializes in managing a portfolio of mortgage-backed securities. NLY's principle business objective is to generate income to be distributed to its stockholders by means of interest on its mortgage-backed securities. NLY has a favorable dividend history with a current yield of 14.77% and is currently paying $2.40 per year in dividends in quarterly installments. An important fact that leads us to believe that there is a promising future for the company is that NLY's Chief Strategy Officer Kevin Keyes recently acquired 50,000 shares of the company. When executives are willing to invest their own capital back into the company in the form of purchasing stock, it implies that they are aware of good things for the company and that a promising future is around the corner. There are risks associated with NLY, and other mortgage REITS. Interest rate fluctuations and not being able to engage in the appreciation of collateral properties since they only hold debt are two of the associated risks but I do see a bright future for NLY for the reasons given and the company is definitely one to keep an eye on.
Another mortgage REIT that invests in similar securities as NLY is Chimera Investment Corporation (CIM). CIM is externally managed subsidiary of NLY so many of the same risks that are associated with NLY are also accompanying CIM. A particular risk that is arguably the most influential is default risks on mortgages. If occurrences similar to the bursting of the housing bubble happen again, along with a hurting economy and a decline in the average income, default rates will increase and returns for CIM, related mortgage REITs, will be directly impacted. CIM has a very impressive dividend yield of 19.5% but has decreased its dividend declared in recent quarters and is underperforming its competition in metrics such as price to earnings, earnings per share, and has seen a decrease of 37.9% in revenues over the past year, well below what its competition has experienced. It is difficult to say whether or not CIM can continue with its current dividend yield and that is a risk that investors must take into consideration when assessing this stock. There is enough evidence and risk associated with CIM to suggest that this mortgage REIT may continue to get hit hard by the sluggish economy and may not perform as well as its competition in the future.
Frontier Communications Corporation (FTR) is the nation's largest communications services provider focusing on rural America and offering broadband, phone, satellite television, wireless internet, and other services. In its recent 2011 third quarter report, FTR announced that the company experienced 126,000 new households with broadband availability and 16,200 new high-speed internet subscribers. The expansion of broadband to new rural areas is in line with FTR's focus of enhancing revenues to protect its stable dividend. However, net income available to common shareholders was $20.4 million, or $.02 per share, and this is down compared to the third quarter of 2010, which posted income available of $29 million, or $.03 per share. Included in the third quarter of 2011 are the costs of acquisition and integration amounting to $67.4 million. This decrease can be attributed to a decrease in operating income for the quarter and the significant costs involved in the acquisitions and integrations. Though revenues and subscriptions in certain services were down for FRT in the third quarter, the company experienced growth in certain areas as well. I think FTR will be a stock to watch in the future, especially with a dividend yield of 15.2%, but the decreased revenues cause me to be leery in suggesting FTR as the ideal dividend stock at this time.
France Telecom (FTE) is one of the world's leading telecommunications operators and its key brand is Orange. Orange is one of the main European operators for mobile and broadband internet services and a global leader in providing telecom services to multinational companies. FTE's management has spelled out its vision in a four pillar plan consisting of customers, networks, international development and employees. This vision focuses on specific tactics for growth in revenues and a specific goal for the desired amount of EBITDA and capital expenditures. The company projects an expected revenue growth of 2.7% for the years 2013-15 and a growth of EBITDA of 3.4% during this period as well. In their 2011 third quarter report, FTE announced an increase of 6.3% in customers compared to the third quarter of 2010. FTE experienced a decrease in revenues in France for the third quarter but an increase in revenues in Spain and parts of Africa and the Middle East. As FTE continues to increase its market share and as its management implements its plan for growth over the next three years, I see an increase in share price and continued success for the company. Once Europe becomes less volatile and returns to normal, FTE will be a company for investors to pay attention to as a dividend stock for the future.
In conclusion, these six companies are known best for their high dividend yields and there is potential in each of them to maintain their yields. However, the best performing company, in terms of growth in revenues and free cash flows and the implementation of a profitable business model by the management teams, is TEF in my opinion. TEF is outperforming its competition and has seen an increase in its market share and in key financials. I would suggest that TEF is a solid dividend stock investment and that future growth and performance is inevitable for this company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.