Dividend Yields Soar

After yesterday's severe declines in the Financial sector, the indicated dividend yields on many of these companies have become laughable.  Bank of America yielding 11.6%!  Wachovia yielding 10.5%!  Many of these dividends are going to have to be cut for these companies to stay solvent, but for ones that are able to continue with their regular payouts, share owners will be getting quite the yield.

Below we highlight stocks in the S&P 500 with the highest indicated dividend yields.  If you're buying these names because the yield looks too good to be true, remember that it probably is.

Comments

[truthinvesting:]

Pfe Reynolds Mo and PM and KFT would be better

2008 Jul 10 09:10 AM

[DavidYou:]

The financial companies should cut their dividends in full for the next 2 years. They are paying a high cost for capital to make these dividends or diluting their stockholders significantly. That makes no sense.

2008 Jul 10 11:42 AM

[Alan Young:]

ACAS has convinced some analysts that its dividend is safe. As a BDC, it must return a high % of its earnings to shareholders. I have no illusions that I'm going to keep getting the same return on it thru the next year's economic difficulties, but even if the divi is cut in half, it's a bargain. By the same reasoning, LYG and BKK are other good income bets.

2008 Jul 10 12:13 PM

[Michael42:]

ACAS hasn't cut it's dividend yet in over 10 years of operations. In fact they've continued to increase it.

The effective yield has almost doubled as the share price has dropped. But the underlying fundamentals are still strong. Deals are still being made and cash is still coming in.

2008 Jul 10 02:08 PM

[jimmy46:]

SOME OF THESE STOCKS HAVE ALREADY CUT THE DIVIDEND.

Your research <sic> is poor

2008 Jul 10 02:13 PM

[docmike:]

Keycorp slashed its dividend in half, and it has not cut it in more than 40 prior years, I think. ACAS has not cut its dividend in more than 10 years? That's not enough to say it won't cut it now.

Yet, there are some nice dividends to be had elsewhere - look at the shippers, for instance, like GNK and SSW.

Disclosure - long GNK and SSW.

2008 Jul 10 04:51 PM

[Ames Tiedeman:]

Few of these have safe dividends. You're dreaming if you think these are safe. Even the PFE dividend looks extreme.

2008 Jul 10 07:20 PM

[OneRichOne:]

Last I knew, Div's were based on company profitability, NOT on stock price. Many of the financials were hit hard with the subprime mess. People who buy and sell on fear make me rich. Lotsa bargains out there right now.

2008 Jul 10 09:36 PM

[docmike:]

Onerichone - They are only bargains if you can figure out why the fundamentals can reverse and if you are sure this is the bottom. Otherwise, these "bargains" could be at best "dead money" and at worst "paper losses" for quite some time.

2008 Jul 11 01:29 AM

[mariposa:]

To Doc Mike
I too am long SSW, as well as several other shippers. I have been concerned about the future of container ships, and am unimpressed with the performance for months. Holding because of the 8%.
I had heard that more US companies are doing less outsourcing. Could this be part of the container ships problem.
Sorry to post this here, but didn't know how else to contact Doc Mike.

2008 Jul 11 09:37 AM

[inthewings:]

Why does Seeking Alpha even publish lists like this? It is nothing more than the results of a very simple screen. Waste of my time. :-(

2008 Jul 11 11:23 AM

[rapidbenz:]

OneRichOne is quite correct; dividends are based on earnings and profitability. The lowered stock price just gives investors a greater ROE opportunity regardless of potential for equity gains, as well as a healthy hedge against further erosion.

In ACAS' Q1 results and FY08 dividend estimates released on 2/13/08, CEO Malkin Wilkis stated, “Our performance in 2007 was outstanding, particularly in light of the credit crisis,” said Malon Wilkus, Chairman, President and CEO. “We produced $4.65 of Realized Earnings per share which covered our dividend of $3.72 per share by 125%. The excess earnings, in part, allowed us to roll over $361 million of taxable income into 2008 to pay 2008 dividends. During the past ten years, I have answered investors' questions concerning how we would perform in a recession and credit crisis by stating that we would continue to perform well in a “steady state” mode. This year, we may have the opportunity to prove ourselves in such an environment. Our plan for the year includes a recession, no growth to our balance sheet and other steady state assumptions. Based on these assumptions, we forecast that we will increase our 2008 dividends 13% to $4.19 per share, and we forecast that we will roll over to 2009 more than $500 million of taxable income to pay 2009 dividends, a 39% increase in the amount rolled over into 2008 from 2007. Beyond this outstanding steady state performance, there are tremendous opportunities to make investments in dramatically under valued assets. If we were to raise additional attractively priced capital in 2008, we have the potential of investing in some of the best investment opportunities we’ve seen which could improve on these forecasts.”
(This PR can be read via the URL I included in "Website").

The 2008 dividend estimate included in this press release announced the Q1 dividend of $1.01 / share, with the balance of 2008 forecast as:
$1.03 for Q2 2008, 13% increase over Q2 2007;
$1.05 for Q3 2008, 14% increase over Q3 2007; and
$1.10 for Q4 2008, 10% increase over Q4 2007.

Next earnings announcement is 8/4 so don't miss the ex-div for $1.05 / share!

Since the 2007 taxable income rollover has already funded these dividends, even with the stated flat-line expectation through FY08, I cannot think of many other high-yield, low risk investments that float my boat.

A low tide does sink all boats, and the ~54% ACAS share value decline in the last eight months attests to the strength of the tar and feathers they were splattered with in the overall meltown of all things "Financial".

In ACAS' case, this collateral damage didn't hit any vital organs or blast any serious holes in the hull. Things look pretty buoyant to me, so I'm willing to bet she doesn't get stuck in the muck with the also-ran CDO / CLO subprime junkies when the tide comes back in.

2008 Jul 11 05:23 PM

[jjason:]

I agree with Rapidbenz. ACAS is a well run company. I would also like to add that a BDC must have a total debt to equity ratio of less than 1 to 1. This means that ACAS is not highly leveraged. Also, ACAS has no goodwill or intangible assets on the balance sheet. Finally, ACAS has a stock buyback program and Malon Wilkes has said that a stock price below $25.00 is when ACAS may begin buying back shares.

At the current price, I think ACAS is a bargain.

Long ACAS

2008 Jul 13 06:00 AM

[truthinvesting:]

PFE REYNOlds UST KFT USB DOW and KO and JNJ would be much smarter portfolio combining growth and income.NEVER buy a stock JUST FOR DIVIDEND.You will be like a rat in a trap that decides he doesn't like cheese anymore

2008 Jul 13 10:20 AM

[buyitcheap:]

truthininvesting, now that's a portfolio for the long haul. Good choices. Add in MCD and a booze/beverage (RIP BUD) stock and you can sleep beautifully.

2008 Jul 14 08:22 AM

[Dividend Gr...:]

Unfortunately the highest yielding stock lists these days contain stocks with a higher risk of cutting their payment. In this difficult environment, no one could tell you if any financial company will keep its dividend payment stable. Maybe that's why dividend investors need to be diversified across many sectors and not chase yield blindly.
I really hope ACAS could keep paying its rich dividend. But as the stock goes lower it seems to me that raising capital through share offers will be pretty expensive in the future..

2008 Jul 14 01:23 PM

[docmike:]

Mariposa - I know this is delayed, but...
1. Read this: online.barrons.com/art... - SSW'a ships are booked solid for the next seveal years, eves the ships that is has yet to take delivery on.

2. Go here and listen to June 16, 2008 webcast and watch the slide presentation: www.seaspancorp.com/in...

3. This really tells the story: www.seaspancorp.com/fl...

Look how many ships are chartered, for how long and that includes even ones that haven not yet been built!

2008 Jul 18 12:53 AM

[The pessimi...:]

Hanging in there on NAT. Sold off FRO for profit.. not relying on dividend alone and will pull the trigger again when it drops a few bucks. It will ramp up higher than last pull back...hence the pseudonym. Last in shipping will be SFL.. enough of the ocean shipping transports. Keeping T ,DD, NUE, KO and JNJ. MO and USB might be latest purchases then it's time to keep 5% on sidelines for awhile. Going to put ACAS on radar for a week then we will see.

2008 Jul 22 02:55 PM

[The pessimi...:]

oh..in closing. XTO, CHK, PK, and LINE are all dropping like hot rocks. A few days and there should be a soft bottom.. maybe a small surge, maybe a better than average surge. Hurricans and oil?? Nat gas may work again sooner than later. On the cyclical side, NDN and DLTR are ramping a bit.. school is coming and the bigger retailers may have a time with pricing. Following teachers and students concerns. Give them a look.
good day

2008 Jul 22 03:02 PM

[rd4sndk:]

Correct me if I'm wrong but Since you're buying the stock for the div, then why not hedge your stock purchase with some puts? Any errosion in the stock will bet off set by the puts. Any sign of a bull market, you can cover lower your puts and benefit some form the stock appreciation.

2008 Jul 30 03:16 AM

[http://www....:]

10%

2008 Oct 05 01:42 PM