The markets are all over the place, each and every little word about European debt or other similar items can send the markets spinning; up 300 one day down 200 the next. In these uncertain times retirees are feeling some extreme pain and stress as they try to secure their capital but earn enough to make it through retirement. Let us take a look at 5 high yield dividend stocks that will make you money on solid dividends through 2013.
First up are American Capital Agency Corp (AGNC) and Annaly Capital Management (NLY). These are two very high yielding real estate investment trusts (REITs). Shares of AGNC traded around $28 at the time this article was written. This price is close to the 52 week high of $30.76 and above the 52 week low of $22.03. Shares of Annaly traded around $16 at the time of this writing. This is right in the middle of their 52 week high of $18.79 and 52 week low of $14.05. AGNC pays an annual dividend of around $5.60 which is just shy of a 20% yield. It has a payout ratio of 78%. NLY pay an annual dividend of around $2.28 which is around a 14% yield. It has a payout ratio of 124%. NLY recently cut its dividend. This is concerning because it has such a high payout ratio. One is to wonder where the company is coming up with the cash to pay over the 100% mark; of course, it's coming from cash reserves. If the company is truly trying to be smart by cutting its dividend, it should also reduce the ratio. I pick AGNC here because it has a higher yield and friendlier payout ratio that will give holders a better return through 2013.
Merck & Co Inc (MRK): Shares traded around $38 at the time this article was written. This is just off of their 52 week high of $39.00 and well above their 52 week low of $29.47. It pays an annual dividend of around $1.60 for a 4.37% yield. Merck has a 110% payout ratio. It has about $15B of excess cash, so that high of a ratio isn't nearly as alarming as with Annaly above. Merck is an excellent long term drug company play. According to Merck's annual report it has almost 40 current products in the R&D pipeline. Of those, 5 are currently under FDA (or EU equivalent) and another 19 are in phase 3 development. This shows that they have many drugs that could go to market in the near future. Since Merck is one of the biggest healthcare companies, it can spend a large amount on R&D and I don't think they will ever be at a point where they have an empty pipeline. In addition, with all that extra cash on hand, Merck can reach out and buy up any smaller pharma companies that have any promising developments. I think a pullback to $36.00 will happen, making it a short-term sell in my opinion, before it passes the resistance here at its 52 week high. I see it around $50 by the end of 2013. But more importantly, I see a slightly increasing dividend yield and a slimming payout ratio as Merck increases earnings and continues to reward shareholders.
Paychex Inc (PAYX): Shares traded around $30.97 at the time this article was written. They are flirting with their 52 week high of $33.91 and above their 52 week low of $25.12. It pays an annual dividend around $1.28 for a yield of 4.11% and a payout ratio of 84%. Paychex carries no long-term debt and around $400M in cash on hand. One area of concern is that cash has declined since 2009, but Paychex has been buying up lots of smaller companies. According to its annual report, between 2010 and 2011 it grew its Health and benefits services applicants business the most at 23%. I see this growing even more as all the new healthcare regulations begin to kick in. Also, as businesses have had to learn by recent cuts, sometimes outsourcing to experts is cheaper. And as long as Paychex keeps its customers happy, even as the economy improves customers will stay with Paychex. Its checks per client, revenue per check, and client retention have also increased year over year. With no debt, a good reputation and good dividend, I would buy in on a pull back to the $28/$29 range. I think by end of FY13 PAYX could trade around $50 (and have a better dividend) as the company has excellent growth potential, keep developing new products, and keeps pleasing its customers.
Shaw Communications Inc (SJR): Shares traded around $19.40 at the time of this writing. This is just above their 52 week low of $18.82 and below their 52 week high of $23.24. It pays an annual dividend around $0.93 for a 4.56% yield and a payout ratio of 87%. According to its most recent quarterly report, Shaw was able to make up for loss in media revenue with revenues from the cable and satellite divisions. Consolidated revenue improved 19% over this same period last year. The CEO attributed it to customer grown and price changes. This shows me that Shaw can survive these trouble times as they grow customers, and being the largest provider in Canada, can adjust pricing without facing a declining customer base. The only thing that slightly concerns me is Shaw's large debt load in the area of $5.2B. But upon further inspection, the debt comes due in small amounts until 2019 when $1.2B is due. So until then, I like Shaw for growth and dividends. I wait for a pull back to the 52 week low and then buy in from there. For 2013 I see continued growth bringing the stock up to the $40 area.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
