For many investors, dividend stocks are ideal positions to hold, because they can provide a certain amount of stability and income. This means that times when the markets become very volatile is when these companies will outperform the indices. However, there are instances when investing in dividend stocks can be risky. This is because the firm could cut the dividend, which would have an impact on the price of the stock and how investors are seeing its underlying financial strength. Once this occurs, there is the possibility that there could be increased volatility.
Several companies that have been paying big dividends include Nokia (NOK), AT&T (T), Annaly Capital Management (NLY), Verizon (VZ) and Altria Group (MO). To determine if these firms can maintain their current dividend rates, we will examine various factors that could have an impact on the companies' ability to continue paying these amounts in the future.
Nokia
Nokia is currently yielding 9.48%. There is a dividend payout ratio of .786. The total amount of cash that the company has available is $14.56 billion. As far as the profitability is concerned, the firm has profit margins of 1.58% and operating margins of 2.50%. The high dividend rate and large amounts of cash are tempting for many investors. However, the dividend payout ratio is indicating that the company is paying more from the firm’s profits in dividends, while the profit and operating margins are illustrating that the corporation is earning less in sales as well as revenues. Moreover, mobile phone makers are seeing slowing shipments with the industry, expected to average 2% growth for 2012. This is down from the 11% that was realized last year by the sector. In particular, Nokia is one company I highlighted that could continue to lose share to Samsung (SSNLF.PK). These elements are indicating that Nokia will more than likely be forced to cut dividends in the future.
AT&T
AT&T is paying a dividend yield of 5.80%. There is a payout ratio of .755. The total amount of cash the firm has available is $10.76 billion. When it comes to profitability, AT&T has profit margins of 9.32% and operating margins of 16.16%. The high dividend rate and large amount of cash show the company could be an attractive dividend candidate for investors. The payout ratio is highlighting that the company pays most of its earnings to shareholders in the form of a dividend. The profit and operating margins are indicating that the firm is realizing consistent growth in earnings.
What has been driving the majority of the company’s earnings growth has been the push by executives to continue moving into wireless services (most notably 4G LTE). These facts and figures show AT&T has the ability to continuing paying high dividends in the future, based on the reality that the firm is seeing greater earnings and sales growth. While continuing to expand into other areas, this is helping to fuel the growth of the company’s wireless division in the future.
Annaly Capital Management
Annaly Capital Management is paying a yield of 14.20%. The payout ratio is .957 and the company has $4.89 billion in cash. The profitability of the firm includes profit margins of 80.62% and operating margins of 84.07%. The high yield, payout ratio, cash position, profit and operating margins are an indication that the company has the ability to continue paying these kinds of dividends in the future, because the Federal Reserve has indicated that interest rates will remain at the same level well into next year. Moreover, real estate investment trusts (REITs) are required to pay out most of their earnings to shareholders in the form of a dividend. As a result, this means that there will not be adverse changes to the firm’s business model from sudden increase the Federal Funds Rate, which will help to keep the dividend yield steady.
Verizon
Verizon is paying a yield of 5.00%. The payout ratio is 0.917 and the firm has $10.86 billion in cash. The profitability for the company includes profit margins of 6.49% and operating margins of 22.35%. These elements are illustrating how Verizon has the ability to continue the current dividend rate in the future. The company is paying out the majority of earnings to investors in the form of dividends; the large amounts of cash and operating margins are showing how the firm is continuing to maximize its sales. The only drawback is that the company’s profit margins are not as strong as they should be. This is an indication that the firm has been investing heavily in 4G LTE technology and away from the traditional business model of fixed lines (which has been hurting the firm’s growth rate). In the future, the heavy investment that Verizon is making in wireless technology means that shareholders will continue to receive the current dividend rate.
Altria Group
Altria Group is currently paying a yield of 5.70%. The payout ratio is .828 and the firm has $3.04 billion in cash. The profitability for the company includes profit margins of 21.16% and operating margins of 39.63%. These facts are indicating that Altria will continue to pay the 5.70% dividend rate in the future. The firm is disbursing out most of the earnings to shareholders in the form of a dividend. The large amount of cash, high profit and operating margins are showing how the company is experiencing large amounts of growth. The various tobacco and alcohol related products have remained steady. In the future this means that investors can look forward to the dividends remaining consistent and possibly increasing.
The dividend rates for the above companies will depend upon their business models and ability of the firms to continue to provide consistent growth. In the case of Nokia, the dividends will more than likely fall in the future because of these factors, while AT&T, Annaly Capital Management, Verizon and Altria Group will continue to see steady dividend yields. These factors are illustrating how the majority of the firms mentioned will be able to maintain these rates. This is based on the underlying strength of the business model and the ability to provide these benefits to shareholders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
