The demand and popularity of high paying dividends stocks has been constantly increasing due to the low-interest rate environment set by the Fed. Nevertheless, investors are always able to find stock with high annual dividends. The question is, are the dividends of these corporations sustainable?
Home Depot (HD): Home Depot has a current annual dividend of $1.16, a yield of 2.7%, and a payout ratio of 43%. Cash flow has been solid and growing, in fact the stock has recently reached a 52-year high and its momentum is expected to grow because of its stronger financial position in comparison to other stocks. For instance, Home Depot has a much higher dividend and yield than Lowe's (LOW), which currently has annual dividend and yield of 0.56 and 2.10%, respectively.
In fiscal year 2011, the stock had sales growth and income growth of 2.80% and 27.40%, respectively. Home Depot has a price to earnings ratio of 18.7, below the average retail industry price to earnings ratio of 18.8.
The stock has had a strong growth in dividends paid over the last five years with a 5 year average dividend yield of 3.00% As I expect the real estate market to rebound soon, Home Depot's business is expected to grow as well. Sales and revenue are expected to increase as the demand of building materials, home improvements, and lawn and garden products will strengthen, therefore dividends are more likely to increase.
Exelon Corporation Common Stock (EXC): Exelon has a high annual dividend of $2.10, a yield of 5.30%, and payout ratio of 58.00%, which are much higher than its competitors, UGI Corporation Common Stock (UGI), which has an annual dividend of $1.04, a yield of 3.70%, and a payout ratio of 50%.
Exelon has a 5 year average dividend yield of 3.60% with sales growth and income growth in fiscal year 2011 of +7.70% and -5.30%, respectively. Although income growth declined 5.30%, Exelon has had stable profits over the last five years and an increasing positive cash flow from operations within the last five years as well.
It is important to note that the company has beat earnings estimates for the past five quarters, which indicates the strong ability of Exelon to protect and grow earnings. I think that Exelon's profits and cash flow will grow because of its solid yield, payout ratio and stable cash flow. Therefore, dividend growth is likely, going forward.
Avon Products Inc. (AVP): Avon has a strong yield of 5.30% and an annual dividend of $0.92. The 5 year average dividend yield stands at 2.60% with a payout ratio 54.00%. The current yield, which is higher than the five year yield, indicates the company has been increasing its dividend payments over the last five years. This may also imply that Avon expects to keep increasing the dividends paid to their shareholders in the future.
Avon's net cash flow has been steady for the past five years, which is a good indication that cash flow will remain within the same range and dividends will be maintained at the same levels, if not higher. The current economic conditions has made Avon a go-to source for women seeking an additional income, which is great for the company because an increase of sales representatives indicates revenue may increase substantially during this tumultuous economy.
A major drawback is that the stock has been in a continuous decline for the past 24 months, which can cause a cut in dividends. Furthermore, the recent news that CEO Jung was stripped of her CEO title questions how the company will perform in the future. Due to these changes, a cut in dividends is a very reasonable option causing the yield and payout ratio to decrease.
Annaly Capital Management Inc (NLY): Currently, Annaly has a payout ratio of 124.00% and a 5 year average dividend yield of 11.40%. Its annual dividend stands at $2.28 and a yield of 13.90%, which is higher than its 5-year average. This indicates Annaly has been increasing its dividend payments over the last five years.
The overall market expects the real estate market to begin improving therefore business prospects for Annaly will begin to appear. A positive outlook in the industry will help the stock in preserving its current cash positions and even increasing their quarterly dividend payments. In fact, the stock has been increasing it dividends paid over the last three years, implying its ability to protect their cash and distribute a portion of it to shareholders and its revenue and profits continue to increase.
A disadvantage is that over the last twelve months sales growth and income growth have declined 8.20% and 35.70%, respectively. Again, the expected improvement in the real estate market may boost its sales and income, but it's just a matter of time.
Verizon Communications Inc. (VZ): The provider of communications services has an annual dividend of $2.00 and a yield of 5.13%. Although net income decreased in fiscal years 2008 through 2010, primarily due to increased investments, revenue has been stable and cash flow has been growing substantially. For instance, the 5 year average dividend yield of 5.30% and a payout ratio 94.00% confirms the stock's robust capabilities of sustaining their current dividend payouts or even increasing them in the next quarters.
Verizon plays a key role in the mobile industry and with the growth in smart phones, the company is financially positioned to ripe the benefits of this lucrative market. As the market grows so will their revenue and cash flow, making it viable to distribute more cash back to shareholders.
With strong payout ratios and dividend yield, Verizon is likely to maintain or even increase the stock's dividend payments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
