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Friday, February 18, 2011

6 Noteworthy Stocks with Yields Over 4%

If you’re looking to boost the total dividend yield of your portfolio, picking up a few stocks yielding 4%, 5%, or 6% can go a long way. One must be careful, of course, to select companies that have sustainable dividend payouts and that are good long-term investments. Although not every one of these may make for a good investment, and readers should do their own more thorough research, here are six high-yielding companies that are worth being aware of.

Altria Group (MO)

Altria is one of the largest tobacco companies in the world, and also has an interest in alcoholic beverages. Depending on the individual investors views on ethical investing, it may or may not meet your requirements for inclusion in your portfolio, but the dividend yield is particularly high. There have been threats to the tobacco industry in many countries including the US for quite a while, and the uncertainty has kept stock valuations quite low. Coupled with the high dividend yields, tobacco investors that have reinvested their dividends have absolutely crushed the market over the last few decades. With a market capitalization of over $50 billion, Altria is the market leader in the United States. A key downside to this stock is Altria’s balance sheet. With a fairly high debt/equity ratio, a moderately low (but very stable) interest coverage ratio, and goodwill that approximately equals shareholder equity, Altria’s balance sheet leaves a lot to be desired. This is partially offset by the consistency of sales and profits, but worth taking into consideration when investing.
Dividend Yield: 6.30%
Latest Annual Dividend Increase: 10%
Payout Ratio: 80%
Total Debt/Equity Ratio: 2.37

CenturyLink (CTL)

CenturyLink, created after the acquisition of EMBARQ by CenturyTel, is an integrated communications company with significant operations in the heartland of the United States. The dividend yield has decreased a bit in recent months due to a significant stock rally, but the yield is still quite significant. The high payout ratio makes the dividend a little bit risky, and limits dividend growth. This is typical in this industry, however, and the consistent operations help keep the dividend stable. CenturyLink, like the previously mentioned stock, has a balance sheet that is stable but not particularly appealing.
Dividend Yield: 6.50%
Latest Annual Dividend Increase: 4%
Payout Ratio: 91%
Total Debt/Equity Ratio: 0.79

Allete (ALE)

Allete operates in both the energy and real estate industries. The company has significant leverage, but this is to be expected from a utility, and the stock trades at a lower P/B ratio than many other utilities. The utility portion of this company operates mainly in the US Midwest, and they have significant and growing renewable energy sources in the form of wind and hydro power. The company has a significant amount of real estate in Florida, and intends to sell at reasonable prices. A strike against ALE is that the company did not increase the dividend in 2010 over 2009.
Dividend Yield: 4.70%
Latest Annual Dividend Increase: 0%
Payout Ratio: 74%
Total Debt/Equity Ratio: 0.81

Leggett and Platt (LEG)

Leggett and Platt is a diversified designer and manufacturer of engineered components for a variety of industries. The balance sheet for the company is mediocre. The valuation and payout ratio are a bit high, but that is partly due to the cyclical nature of the company. As the economy recovers, continued rebound is expected by analysis forecasts. The good news for the company is that it generates extremely impressive cash flows, and in particular, a very healthy level of free cash flow in comparison to their net earnings. This allows the company to not only offer a significant dividend yield, but also to spend a considerable amount of money on share repurchases which fuel dividend growth.
Dividend Yield: 4.70%
Latest Annual Dividend Increase: 4%
Payout Ratio: 90%
Total Debt/Equity Ratio: 0.56

The Southern Company (SO)

The Southern Company is an electrical utility operating in Alabama, Florida, Georgia, and Mississippi. SO provides a recession-resistant and substantial dividend to potential investors. Downsides of the company include a weak balance sheet (but fair for a utility), and weak free cash flow. The dividend growth rate is significant considering the yield, and so the combined dividend yield and dividend growth rate is fairly attractive. I do find utilities, as a group, to be fairly expensive in the current market.
Dividend Yield: 4.80%
Latest Annual Dividend Increase: 4%
Payout Ratio: 73%
Total Debt/Equity Ratio: 1.07

Lockheed Martin (LMT)

Based on the recently increased dividend and the continually decreasing stock valuation, this large defense and aerospace company now offers a dividend yield in excess of 4%. Revenue, earnings, and cash flow have all performed strongly during the recession. Free cash flow is substantial, and enough to support the significant dividend payout. Unfortunately, like many companies on this list, Lockheed Martin has a balance sheet with a fairly large amount of debt, and goodwill that greatly exceeds shareholder equity. The interest coverage ratio, however, is higher than one might expect, and that’s a sign of stability. The low valuation, substantial dividend growth and yield (even with a low payout ratio), may make this stock reasonably attractive despite the shortcoming of the balance sheet.
Dividend Yield: 4.00%
Latest Annual Dividend Increase: 20%
Payout Ratio: 34%
Total Debt/Equity Ratio: 1.28

Full Disclosure: I am long CTL,PEG and SO.

1 comment:

  1. Now thats a list of some really outstanding dividend stocks.