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We take a look at five stocks that pay great dividends: General Mills (GIS), Kimberly-Clark (KMB), Procter & Gamble (PG), Avon Products (AVP), and Nokia Corp. (NOK). I chose these five stocks because they are all market leaders, deeply entrenched in their industries.

However, with a tumultuous economic environment, it may be difficult for some companies to continue paying out at current levels. Companies generally don't want to pull back on dividend payments, since doing so has been known to weaken the stock price. In this article, I will discuss how these high dividend stocks are coping with this uncertain environment and come to a conclusion on whether or not they can sustain their current dividend levels.

General Mills: General Mills pays an annual dividend of about 3%, with a payout ratio of 50%. It has an impressive return on equity at about 22%. Furthermore, General Mills is profitable with an operating margin of over 16%, which surpasses that of competitors Kellogg (K) and Danone (OTCQX:DANOY), who have respective ratios of 15.45% and 14.65%. For the past five years, General Mills has had a net income hovering anywhere from $1 billion to $1.6 billion in no particular pattern. It has also had free cash flow hovering around the same increment, but not in the same order, as shown here.

A consistent pattern can be seen in a yearly increase in share buy backs, which in turn decrease shares outstanding. Since 2007, the company has gone from having 670 million shares to 644 million shares outstanding. All the while, it has continued a steady dividend payment to shareholders. It is decreasing share dilution to make each share in itself more valuable, while increasing shareholder wealth through a dividend payment. Over the past five years, General Mills' shares returned 64%, which would be 42% without dividends.

In terms of sustainability, General Mills decreased its capital expenditures for the quarter ending May 29, 2011, to the quarter ending November 27, 2011, by about 41%. At the same time, it has maintained a relatively stable quarterly dividend payment. Furthermore, although the statement of cash flows has shown a rather substantial decrease to cash over the past two fiscal years, the most recent quarter's net income rose close to 48% from the last quarter in fiscal 2011. If the net income continues to increase, the cash flow statement will likely improve as well, allowing General Mills to grow its dividend.

Kimberly-Clark: Kimberly-Clark, along with its subsidiaries, manufactures and markets healthcare products worldwide. Kimberly yields an annual dividend of close to 4%, with a 70% payout ratio. The most recent earnings conference call admitted to very low earnings growth, coupled with low operating profit growth. This related to a 2% year-over-year growth in revenue, while a major competitor, Energizer Holdings (ENR), reported over 13% revenue growth for the same period. Meanwhile, despite minimal growth, management stated that it will increase the shareholder base by buying back $1 billion worth of stock and paying out $1 billion worth of dividends.

Recently, management announced a 19% drop in fourth-quarter earnings and stated that the challenges that caused this decline will continue. These were mainly macro-level challenges, including some related to growth prospects in the established U.S. markets. Additionally, the declining birth rate is putting a damper on diaper sales; the company was recently forced to raise prices to offset commodity price increases; the strengthening dollar infringes on international sales; and selling paper goods makes it difficult to maintain attractive margins. These macro-economic factors are expected to remain in effect for the next few years.

However, considering that these are macroeconomic factors, they affect competitors as well. Competitive advantage will depend upon how well Kimberly-Clark can cope with these issues. As the economy improves, the company could be well positioned to increase profits in the future. It might have to increase its payout ratio to maintain dividend levels in the near term. I only recommend buying Kimberly-Clark for the long-term investor.

Procter & Gamble: P&G provides consumer packaged goods in the U.S. and internationally. It pays a dividend yield of around 3.3%, with a modest payout ratio of 51%. The following chart provides some insight on revenue stability.

Days-sales-outstanding (DSO) is computed using both the average accounts receivables and the end-of-quarter receivables. Although accounts receivable grew faster than revenue in the second quarter of 2011, it seemed to even out into the end of the year. Also, there are no drastic spikes in DSO. This means that management isn't trying to artificially boost revenue by offering its customers overly generous payment terms. Specifically, P&G's most recently reported year-over-year quarterly revenue grew by 3.7%, while AR grew by 5.4%. Although this miniscule spread is nothing to be concerned about, it should be closely monitored in case of potential exacerbation.

P&G recently announced that it will cut 1,600 non-manufacturing jobs, which will save the company roughly $240 million each year. This is just one of several cost-cutting initiatives that P&G is putting forth. It announced a hiring freeze in December and plans to cut 2,700 shelf-stockers from its payroll. Additionally, it is cutting travel expenses by conducting virtual meetings. These cuts are necessary when looking at revenue growth alongside earnings. While year-over-year quarterly revenue growth was about 3.7%, earnings dropped by close to 50%.

P&G is facing the same economic challenges as Kimberly-Clark. As long as there isn't a repetitive decrease in earnings while it continues to initiate additional cost-cutting strategies, P&G can still be seen as an attractive investment. It pays a generous dividend and will likely increase its payments to shareholders as the economy stabilizes.

Avon Products: Avon engages in manufacturing and marketing beauty and related products in worldwide. With a price to earnings ratio of a little over 10, and a dividend yield of over 5%, Avon seems like a buy right now. Although the stock price is down about 40% from its highs, it is maintaining this dividend with a payout ratio of only 52%. Having to pay out a mere 52% of earnings to maintain a high dividend suggests sustainability.

Issues have recently arisen concerning Avon's upper management. After Andrea Jung announced that she was relinquishing her post as CEO, Avon fired its vice chairman for questionable practices. News of this didn't move the stock price much, which suggests that turmoil was already factored into the price. Although restructuring management is generally followed by a re-think strategy, the board remains intact with an average tenure of about a decade. The management is unlikely to implement any major deviations to the current strategy.

The statement of cash flows raises some concern about Avon's ability to sustain these dividends. For the past three quarters, it has recognized a bottom line decrease to cash. For the second and third quarter, dividends paid were 88% and 68%, respectively, of the cash flow from operations. However, the fourth quarter results are likely to show a spike in cash due to an offloading of inventory, assuming the results are similar to those of the fourth quarter of 2010.

Since Avon is selling so cheaply relative to its highs, this might be a good time to buy. The concerns previously suggested could already be priced in. If Avon can recreate a strategy and increase earnings, it might do well.

Nokia Corp.: Nokia manufactures and sells mobile devices, and provides internet and digital mapping and navigation services worldwide. Nokia pays an impressive 10% dividend. However, Nokia operates in a very competitive environment and has been showing some 'lacking' characteristics recently. For instance, Nokia reported a fourth quarter net loss of $1.38 billion. This was due to a 21% decrease in sales, despite its first smart phone market entrance to Europe and Asia.

Nokia has seen a declining market share in developing markets, from what was once more than 45% in 2008 to about 27% in 2011. This has been coupled with a 22% year-over-year revenue decline in the emerging markets because of price competition with Chinese rivals.

However, Nokia is taking steps to improve its future market share. Nokia is working on a Windows phone model that uses Near Field Communications technology. This technology allows the device to connect to external accessories, which could include wireless charging.

Furthermore, since the November introduction, Nokia has shipped more than 1 million Lumia phones. The Lumia 900 was announced at the CES 2012 and will use AT&T (T) as the first carrier to launch the smartphone in the coming months. Also, the company decided to abandon the Symbian platform for high-end smartphones because of fierce competition from products from Apple (AAPL) and Google (GOOG).

Nokia is being pressured from all angles. Its presence is diminishing in emerging markets and it faces fierce competition in the U.S. markets. The 10% dividend yield seems a bit high. At this stage, the best strategy would likely involve reinvesting and restructuring.

Source: Can These 5 Stocks Keep Paying Big Dividends?