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Consumers and investors may be alarmed by rising prices. But a combination of prudent spending and investment can help these overlapping groups of people navigate a period of uncertainty brought on by pent-up demand and supply shortages.
Below are two lists of 19 dividend-paying stocks with attractive yields – companies that should have enough cash on hand to cover dividend increases or other stocks that may be beneficial to shareholders, including share buybacks. and business expansion.
The Consumer Price Index rose 0.9% in just one month – June – the biggest increase since 2008. Jeffry Bartash points out that about a third of overall price increases came from used vehicle prices . For the 12 months through June, prices for used cars and trucks increased 45%, according to the Bureau of Labor Statistics. It’s easy to say that you shouldn’t be buying a car or truck this year. The overwhelming demand for used vehicles has resulted in a shortage for many of the most popular new vehicles, meaning dealers will be less likely to haggle.
Of course you could be in deep trouble and need to get another car or truck at the worst time, but maybe you can make a modest selection this time around. You can also delay a plan to sell your home and move into a bigger one, given that every other nationwide property boom you’ve witnessed has ended up slowing down. In other words, it is possible that some of your big spending plans are being held up or delayed.
Two screens of dividend stocks
What do you expect from a dividend share? The most obvious answer is “income,” but perhaps more importantly, the dividend increases over time. This is how you stay ahead of inflation. Even when official inflation figures are low, your personal inflation can be substantial, depending on your circumstances. Or you might need investment income to replace some of your work income when you retire.
Here is a recent list of the 30 stocks in the S&P 500 Index whose dividends have increased the most over the past five years. Their dividend yields might not have been very high initially, but if you had held them for five years, the yields on your five-year stocks would have increased significantly.
For this new display, we took a different approach to focus more on current dividend yields. Starting with the S&P Composite 1500 index (made up of the S&P 500 SPX,
the S&P Mid Cap 400 MID index,
and the S&P Small Cap 600 SML index,
), we started off with stocks with dividend yields of at least 4.26%, which is three times the 1.42% yield on 10-year U.S. Treasuries on July 13.
Next, we looked at the free cash flow returns. The free cash flow of a business is its cash flow remaining after planned capital expenditures. It can be used to increase dividends, buy back stocks, pay off debt, grow a business, or finance acquisitions. A return on free cash flow greater than the dividend yield can reassure investors that a company is unlikely to reduce its dividend and may be able to increase it.
A return on free cash flow can be calculated by dividing the free cash flow of the last four quarters per share by the current price of the share. If available, consensus estimates for the next 12 months can be used to calculate a forward FCF return. If the FCF yield is greater than the current dividend yield, there is “wiggle room” for free cash flow. (The screen below only includes companies for which forward FCF estimates were available from FactSet.)
Financial companies have been excluded from the screen as analysis of FCF returns is not appropriate for the group. Companies with fewer than five analysts polled for FactSet estimates were also excluded. For real estate investment trusts, funds from operations (FFOs) are the industry standard for assessing the ability to pay dividends. So there is a separate screen for this group below.
Starting with the S&P Composite 1500, here are the eight stocks that took the cut, with dividend yields of at least 4.26%, a positive and final FCF “safety margin” and no dividend cut over the course. past three years, based on data provided by FactSet. The list is sorted by dividend yield:
| Company | Dividend yield | FCF forward return | “Free space” before | FCF follower yield | “Free space” lagging behind |
|
Williams Cos. Inc. WMB, |
6.26% |
9.08% |
2.82% |
7.53% |
1.27% |
|
B&G Foods Inc. BGS, |
6.20% |
11.44% |
5.24% |
11.00% |
4.80% |
|
Kinder Morgan Inc. Class P KMI, |
5.91% |
9.86% |
3.95% |
9.98% |
4.07% |
|
H&R Block Inc. HRD, |
4.57% |
14.83% |
10.25% |
13.28% |
8.71% |
|
Verizon Communications Inc. VZ, |
4.47% |
7.84% |
3.37% |
10.86% |
6.38% |
|
Dow Inc. DOW, |
4.47% |
9.66% |
5.19% |
7.64% |
3.18% |
|
LyondellBasell Industries NV LYB, |
4.43% |
10.82% |
6.39% |
5.30% |
0.87% |
|
AbbVie Inc. ABBV, |
4.41% |
10.19% |
5.77% |
8.61% |
4.20% |
|
Source: FactSet |
|||||
Click on tickers to learn more about each company, including news, business profiles, price ratios, and ratings.
If you are wondering about AT&T Inc. T,
– known for its long-term high dividend yield – the company has yet to announce a dividend cut but said in March that as part of its plan to divest its WarnerMedia properties, it would “resize” the dividend , taking it up to a payout rate of around 40% to 43% of free cash flow.
We don’t have the numbers to predict how high the Lean company dividend might be after the AT&T deals are closed, but the stock return at the July 13 close was 7.36%, while its forward FCF yield was 11.79%. . Normally, this seems like enough leeway to support the dividend. But that does imply a payout ratio of 62%, which is way above the ratio of the current yield to the forward yield of the FCF.
REIT
For a second filter of real estate investment trusts, we used funds from operations (FFOs) instead of free cash flow. The FFO adds depreciation of real estate to profits and cleans up any gains or losses on the sale of the property. Here are the 10 highest yielding S&P Composite 1500 REITs with a positive and future FFO ‘safety margin’ and no dividend reductions over the past three years, according to data provided by FactSet:
| REIT | Dividend yield | Forward FFO yield | “Free space” before | Tracking FFO Yield | “Free space” lagging behind |
|
Omega Healthcare Investors Inc. OHI, |
7.27% |
9.08% |
1.81% |
8.93% |
1.65% |
|
LTC Properties Inc. LTC, |
5.88% |
7.00% |
1.12% |
5.91% |
0.03% |
|
Medical Properties Trust Inc. MPW, |
5.58% |
8.91% |
3.33% |
8.07% |
2.49% |
|
Brandywine Realty Trust BDN, |
5.44% |
9.98% |
4.55% |
10.01% |
4.58% |
|
Physicians Realty Trust DOC, |
4.99% |
6.02% |
1.03% |
5.75% |
0.76% |
|
Industrial logistics property trust |
4.97% |
7.10% |
2.14% |
7.00% |
2.03% |
|
Getty Realty Corp. GTY, |
4.91% |
6.16% |
1.26% |
7.14% |
2.23% |
|
Easterly Government Properties Inc. DEA, |
4.83% |
6.14% |
1.31% |
5.95% |
1.12% |
|
SL Green Realty Corp. SLG, |
4.71% |
8.73% |
4.03% |
8.89% |
4.18% |
|
REIT CareTrust Inc. CTRE, |
4.48% |
6.49% |
2.00% |
5.92% |
1.44% |
|
Source: FactSet |
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As always, you should do your own research before considering an investment. For REITs, it is especially important to consider a company’s investment direction. Whether it’s retail, office, healthcare, or whatever, everyone has their own unique opportunities and challenges.
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