This month’s top dividend stocks include shipping companies Frontline PLC (FRO), Nordic American Tankers (NAT) and Genco Shipping & Trading (GNK), as well as oil exploration company Berry Corporation (BRY) and Two Harbors. increase. Investment Corp. (TWO) is his REIT that specializes in mortgage-backed securities.
- Dividend stocks are issued by companies that regularly pay a percentage of their profits to their shareholders.
- Dividends are usually paid quarterly, but can also be paid semi-annually or annually.
- Dividend yield is the annual dividend amount expressed as a percentage compared to the stock price.
- Dividend yields change as stock prices rise and fall.
- While knowing the dividend yield is important, it’s important to research additional information about the company before investing.
Companies that pay dividends tend to be established with stable earnings and a track record of distributing a portion of that to shareholders in the form of cash or additional stock.
One useful measure of the sustainability of a company’s dividend payments is its dividend payout ratio (DPR), which is total dividends divided by net income. It tells investors how much of a company’s net income is being paid out to shareholders in the form of dividends and how much the company is retaining to invest in further growth.
If this ratio is over 100% or negative (meaning the company is making a net loss), the company may be borrowing to pay dividends. In such cases, the risk of the dividend being reduced is relatively high.
Dividend stocks are known for paying dividends on a regular basis, but they may cut their dividends in tough times to preserve cash.
Dividend stocks are The S&P 500 Dividend Aristocrats Index is up 5% over the past year, compared to a 10% rise in the Russell 1000 Index.
Below, we examine the top five dividend stocks of the Russell 3000 Index by future dividend yield, excluding companies with negative or over 100% dividend payout ratios.
The following market performance numbers and statistics are as of June 22nd.
- Future Dividend Yield: 19%
- Payout ratio: 42%
- Price: $14.87
- Market cap: $3.3 billion
- 1 year total return: 90%
Frontline PLC is a Cyprus-based shipping company that transports crude oil worldwide with 70 vessels. The company announced its first quarter results in May. Total revenue more than doubled year-on-year due to increased demand as the Chinese economy reopened. The company also announced a quarterly dividend of 70 cents per share.
- Future Dividend Yield: 17%
- Payout ratio: 48%
- Price: $6.79
- Market cap: $5.2 billion
- 1 year total return: 4%
Berry Corp. is an upstream energy company exploring oil resources in the United States. In the first quarter, the company doubled his dividend to 12 cents a share. Berry’s first-quarter earnings nearly tripled from a year ago when it lost $132 million on oil and gas sales derivatives.
- Future dividend yield: 16%
- Payout ratio: 58%
- Price: $3.74
- Market cap: $800 million
- 1 year total return: 104%
Nordic American Tankers is a Bermuda-based tanker company that transports crude oil and provides charter services for 19 vessels. The company reported earnings in May, with sales up more than five times year-over-year. And like Frontline, Nordic American Tankers has also seen profit growth related to the re-opening of the Chinese economy. The company announced a dividend of 15 cents per share.
- Future dividend yield: 13%
- Payout ratio: 91%
- Price: $14.34
- Market cap: $600 million
- 1 year total return: -15%
Genco Shipping & Trading Ltd. is a marine transportation company with 44 vessels that transports dry bulk cargo internationally. The company paid a dividend of 15 cents per share in the first quarter, its 15th consecutive dividend. Genco reported lower profitability from its shipping fleet, resulting in a 31% decline in total revenue in the first quarter. Although the company’s earnings technically did not meet management’s conditions for paying the dividend, the board advised the company to reduce earnings for future investments in order to pay the dividend.
- Future dividend yield: 13%
- Payout ratio: 58%
- Price: $13.49
- Market cap: $1.2 billion
- 1 year total return: -15%
Two Harbors Investment is a real estate investment trust (REIT) that invests in and manages mortgage-backed securities (MBS). To qualify as a REIT, a corporation must return 90% of his taxable income to its shareholders in the form of dividends each year. In early May, Two Harbors Investments reported first quarter earnings, with total revenue more than doubling compared to the first quarter of 2022 to $117 million. The company announced on June 21 that it will pay a quarterly dividend of 45 cents per share on July 28.
A high dividend yield does not necessarily mean that a company is in good financial health. In addition to dividend yields, be sure to look at the company’s financial health and growth potential before investing.
Three Ratios Used to Analyze Dividend Stocks
dividend yield: This ratio measures the annual value of dividends received compared to the market value per share of the security. Investors calculate the dividend yield by dividing the annual dividend per share by the current stock price.
For example, if Company XYZ issues a dividend of $10 per year at its current stock price of $100, the dividend yield is 10% ($10 / $100 = 10%). Those looking for high-yield stocks can begin their search by screening stocks with split yields above a certain percentage. Keep in mind that there are many factors other than dividend yield that investors should consider before investing in stocks.
payout ratio: DPR measures how much of a company’s earnings is distributed to shareholders. Investors calculate the ratio by dividing total dividends by net income.
For example, if Company XYZ reports a net profit of $50,000 and pays an annual dividend of $15,000, the DRP would be 30% ($15,000 / $50,000 = 30%). This means that the company will distribute 30% of its profits to its shareholders. Companies that pay less than 50% of their net income in dividends are generally considered stable and have the potential for sustained long-term earnings growth.
Dividend coverage rate: This ratio measures the number of times a company can pay dividends to shareholders. Investors calculate the dividend coverage ratio by dividing a company’s annual earnings per share (EPS) by its annual dividend per share.
For example, if Company XYZ reports net income of $10 million and annual dividends to shareholders of $2 million, the dividend coverage ratio would be 5 times ($10 million / $2 million). Investors typically view higher dividend coverage ratios as more favorable.
Advantages of dividend stocks
The two main benefits of investing in dividend stocks are passive income generation and dividend reinvestment.
unearned income: Dividend-paying companies typically issue dividends on a quarterly basis, creating a reliable stream of passive income that investors can spend as they please. Dividends have the added benefit of offsetting stock price declines.
Dividend reinvestment: Investors can reinvest the dividends they receive into the company to acquire more shares. This is called a Dividend Reinvestment Plan (DRIP). Participating in DRIP allows investors to take advantage of compounded returns, a strategy for building long-term wealth.
Do research on dividend stocks
High yields are just one of several aspects to consider when investing in dividend stocks. Higher-than-average yields can signal a problem when distressed companies pay out large dividends to lure investors.
In addition to the dividend yield, take a closer look at the following data.
- payout ratio: A payout ratio of 35% to 55% is considered healthy, as companies that distribute up to half of their earnings in dividends are likely to be performing better and be industry leaders. Importantly, it reinvests a significant portion of its earnings back into its own growth.
- Dividend increase: The history of solid dividend increases is welcome news. Because it shows that the company had the financial headroom and willingness to continue to pay shareholders and increase payments in good and bad times.
- Solid revenue and profit growth: Over time, the more stable the better. Occasionally, erratic results may not raise eyebrows, but at other times, they may indicate that the company is in trouble.
- Solid market share and competitive advantage: They help companies maintain their ability to perform well. Such advantages include intellectual property, advanced technology, high barriers to entry, and well-known and respected brand names.
What is Dividend Yield?
This is a percentage that represents the ratio of income (from dividends) that a company pays to equity investors to its share price. Dividend yield is just one of the metrics that help investors determine whether a company’s stock can be added to their portfolio.
What is the relationship between dividend payout ratio and dividend yield?
Dividend yield compares dividends to stock price, while dividend payout ratio compares dividends to company earnings. In other words, it shows how much a company pays investors and how much it owns. This gives an idea of the income that the investor is expected to receive in the future. If the payout ratio is too high, meaning the company pays investors far more than it reinvests in itself, it could mean there isn’t much room for dividend growth. It could indicate that the company is in trouble.
Which companies have paid dividends the longest?
Notable companies that have paid dividends to shareholders for over 100 years include Coca-Cola, General Mills, Chubb, Colgate-Palmolive, Procter & Gamble, Consolidated Edison, Eli Lilly and Exxon. Mobil etc.
Dividend yield compares the income a company pays to its shareholders to the price of its stock. It is calculated by dividing the annual dividend (the amount of income paid out during the year) by the stock price. A high dividend yield may be attractive, but it doesn’t necessarily mean the stock is a smart investment.
Dividend yield is one of the tools you can use to screen potentially valuable dividend stocks. If the dividend yield is too high, it may indicate that the company is struggling. Similarly, companies with extremely high dividend payout ratios can also signal danger to investors.
Before you invest your money, take the time to look for companies that are financially sound enough to maintain and grow their dividends and continue to offer attractive dividend yields.
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As of the date of writing this article, the author does not own any of the above shares.
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