10 Sustainable Dividends Currently Yielding More Than 5%
Dec 12th 2013 2:10PM
Updated Dec 12th 2013 2:12PM
Time certainly flies when you're having fun -- and much fun was to be had this year, with all three major market indexes returning in excess of 20% year to date!
In order to keep this joyous spirit going throughout the next two weeks leading up to Christmas, I've decided to once again count down this holiday season with my own Foolish rendition of the "12 Foolish Days of Christmas." Instead of turtle doves, French hens, and partridges invading pear trees, you'll be privy to high-growth stock ideas, game-changing innovations from a wealth of industries, unique ways to fuel your retirement account, and so on.
Over the previous two days for our Foolish holiday kickoff we've counted down the:
- 12 Large-Cap Stocks Set to More Than Double Their EPS in 2014
- 11 Game-Changing Drugs Approved by the FDA in 2013
Now it's time to move the countdown lower by a notch!
"On the 10th day of [Foolish] Christmas my true love gave to me..."
10 sustainable dividends yielding more than 5%!
The truth of the matter is that dividend stocks are everywhere, but few offer the right blend of growth and sustainability to make them worthwhile. In the spirit of the season, let's take a closer look at 10 companies currently sporting yields of 5% or greater that have the cash flow and growth potential to keep stuffing investors' stockings with dividends.
1. AT&T : current yield 5.3%
There are few companies better known for their impressive dividends than telecom giant AT&T. Because AT&T primarily provides wireless and wireline access, and those products have evolved into a near-necessity for Americans -- often requiring a one- or two-year commitment -- AT&T is able to count on relatively consistent cash flow quarter-to-quarter regardless of how the U.S. economy is faring. Furthermore, with more people using their phones to access the Internet (55% of respondents admitted to doing so in a 2012 Pew Research poll, up from 31% in 2009), AT&T is able to keep pumping up its bottom-line with highly profitable data plans.
2. Realty Income : current yield 5.6%
Realty Income may not be a household name, but this retail real estate investment trust leases its properties to such names as Diageo, Rite Aid, and Dollar Tree. Realty Income has been able to utilize the fact that nearly all of its tenants are considered investment-grade, and has relied on long-term leases to ensure stable year-over-year cash flow. In fact, more than 55% of Realty Income's leases are secured through at least 2023. With the only constraint being the amount of rent increase that it can pass along to its tenants, Realty Income has enacted 64 straight quarterly dividend increases and 73 total dividend increases since being listed on the NYSE in 1994.
3. Altria : current yield 5.1%
The next closest thing to a basic necessity company like AT&T is an addictive company like Altria, which makes tobacco products and is best known for its Marlboro brand in the U.S. Although U.S. laws have been more stringent regarding tobacco usage and public awareness of the dangers of smoking is increasing thanks to the Centers for Disease Control and Prevention, Altria nonetheless has among the best pricing power in the business. As cigarette volume tapers off, it can simply shed jobs, cut operating expenses, and boost premium brand pricing to make up the difference and fuel its dividend growth.
4. National Grid : current yield 6.6%
Yet again, basic necessity stocks such as National Grid, an electricity and gas distributor in New England and the UK, are often going to rule the roost when it comes to impressive dividends. Regardless of how robust or poor the global economic outlook people still need electricity to power their homes and businesses. With new eight-year pricing controls now in place for its regulated UK business and the U.S. outlook for energy demand improving, National Grid's 6.6% yield is looking quite safe.
5. Kinder Morgan Energy Partners : current yield 6.9%
Perhaps one of the few aspects of the energy sector that's even more lucrative than retrieving oil, natural gas, and natural gas liquids out of the ground is the actual transport and storage of these assets. Oil and gas exploration and production companies need to waste precious capital looking for their next find while the back-end refiners are controlled by oil and gas spreads and demand. This leaves the pipeline middlemen like Kinder Morgan Energy Partners to profit the most from this new U.S. energy boom. Since 2001, this master-limited partnership has boosted its payout by 145%.
6. Orange : current yield 5.5%
Foreign telecom service provider Orange (previously France Telecom) hasn't had the easiest go of things, with austerity measures in Europe and tougher mobile competition from Free Mobile in France hurting its cash flow in recent quarter. However, Orange has numerous growth opportunities in emerging Sub-Saharan African markets, and can rely on the somewhat steady cash flow generated from its big investments in improving its data-based mobile infrastructure in Western Europe. With the company still generating more than $4 billion in free cash flow in a "weak" trailing 12-month period I'd say this current yield is perfectly sustainable.
7. GEO Group : current yield: 6.7%
If there's one thing you can count on from the U.S. it's a higher incarceration rate than any other industrialized nation. GEO Group is therefore able to boost its contract pricing to provide detention services on an as-needed basis to ensure that it covers its costs. This is also great news for shareholders, since the company is a REIT as of early 2013, meaning that at least 90% of its profits are returned to shareholders on an annual basis in the form of a dividend. Unless we stop throwing close to 1% of our population behind bars or we see a huge decline in government funding, GEO Group is primed to keep delivering a huge dividend to shareholders.
8. Ensco : current yield 5.2%
You're probably noticing a big energy trend here, and that continues with contract driller Ensco, which specializes in deepwater drilling around the globe, including the Gulf of Mexico. Global energy demand is only expected to increase, yielding Ensco a work backlog totaling $11 billion through the third-quarter of 2013. With double-digit day-rate fee increases for its floater and jack-up rigs in Q3, it's pretty evident that Ensco's pricing power is easily going to drive cash flow higher. Not surprisingly, Ensco's quarterly payout has doubled over just the past four quarters, and is up -- get this -- 3,000% since the recession!
9. AstraZeneca : current yield 5%
Large pharmaceutical companies always run the risk of diving headfirst off the patent cliff, but AstraZeneca, which pays out its dividend in unequal semi-annual amounts, looks fairly immune thanks to recent FDA approvals and its pipeline. AstraZeneca has a real shot at a blockbuster approval in conjunction with Bristol-Myers Squibb with a new type 2 diabetes drug, Forxiga, which has a PDUFA date of Jan. 11, and should see double-digit gains from many of its other newer cardiovascular products. With brand-name drugs often boasting big margins, AstraZeneca's 5% yield certainly looks safe for now.
10. Alliance Resource Partners : current yield 6.3%
Last, but certainly not least, is coal production and marketing master-limited partnership Alliance Resource Partners. That's right -- I just said coal! Alliance Resource differs from your standard coal producers because of its favorable tax structure and the fact that it sets up long-term production contracts. As of its most recent quarter, approximately 3%-10% of its annual production between 2014 and 2016 remains vulnerable to mark-to-market coal pricing. Alliance Resource has now delivered 22 consecutive quarterly dividend increases and has more than doubled its payout since the end of 2007.
If you like top-notch dividends, then you're sure to like these nine stocks
Dividend stocks can make you rich. While they don't garner the notoriety of highflying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of their quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts identified nine rock-solid dividend stocks in this free report. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
The article 10 Sustainable Dividends Currently Yielding More Than 5% originally appeared on Fool.com.Fool contributor Sean Williams owns shares of Orange, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong . The Motley Fool owns shares of, and recommends Orange. It also recommends Alliance Resource Partners, Diageo, and National Grid. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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