When it comes to dividend stocks, none are as generally well-regarded as “dividend aristocrats.” A true dividend aristocrat is more than just another name among other high-yield stocks.
It should also hold out the promise of capital gains. At minimum, it should hold its value. And that dividend needs to be secured by earnings.
A high stock yield will hide these risks. As the price of a dividend stock falls, its yield will appear to rise. But look closely, because dividends can be cut, or eliminated, at any time. General Electric (NYSE:GE) was well known among high-yield stocks, for instance, then the company cut its dividend. The falling stock price means the yield looks high again, but it may not be secure.
Certain stocks are designed for dividends. For example, real estate investment trusts (REITs) are required to pay out earnings as dividends, and often have huge yields. In the oil patch, master limited partnerships (MLPs) are often high dividend stocks, as many are devoted to “midstream” operations like pipelines.
But there are also some very fat dividends on the open market, if you know where to look, and are ready to assume some risk. With that in mind, the following are three dividend stocks to consider.
High Dividend Stocks: CenturyLink (CTL)
Dividend Yield: 9.6%
CenturyLink (NYSE:CTL) combines the old U.S. West phone company with internet assets, and its 54 cent-per-share quarterly dividend represents a yield of 9.6% on its Sept. 12 opening price of $22.40-per-share.
How is this possible? The company is very devoted to the payout, but analysts wonder how long it can last.
If you look at its cash flow, you see it can. For the quarter ending in June, for instance, CenturyLink had operating cash flows of $1.582 billion. It invested about half of this into maintaining its plant and paid out another $576 million in dividends. That still left it with positive cash flow of $192 million for the quarter.
Bears looked only at the company’s net income, $292 million for the quarter — $115 million for the previous quarter — and asked how long they can keep doing this. The answer is that by buying profitable companies, like Level 3, an optical fiber operator bought for $34 billion in 2016, it can do this for some time. All of this is to say that CTL is one of the high dividend stocks you should keep an eye on if you’re hunting for massive yields.
High Dividend Stocks: Ford (F)
Dividend Yield: 6.4%
Ford (NYSE:F) is a dividend aristocrat because its stock price keeps falling. I should know. I own a bunch of it, and I’m sitting on a loss.
At Ford’s Sept. 12 opening price of $9.31-per-share, the 15-cent-per-share quarterly dividend represents a yield of 6.4%.
This stock is surprisingly affordable compared to other high-yield stocks. Ford had net income of $1.06 billion in the second quarter and paid $586 million in dividends. The dividend was thus covered nearly twice over. The problem, and it’s why the dividend stock is so cheap, lies in its $12.2 billion in long-term debt, and the need to keep adding debt to stay relevant in the market.
Under CEO James Hackett, Ford has a five-year plan to pull away from gasoline cars and toward self-driving electrics, while continuing to push sales of big trucks and SUVs that drive its profit. There is skepticism this will work, hence the low stock price. But if you believe in its plan, then this is one of the dividend stocks you should consider if you’re looking for a sizable yield.
High Dividend Stocks: Banco Bilbao Vizcaya Argentaria (BBVA)
Dividend Yield: 12.2%
Banco Bilbao Vizcaya Argentaria (NYSE:BBVA), known as BBVA, is a Spanish bank that is very active in emerging markets. This explains why the stock is so cheap that a dividend of 18.5-cents-per-quarter yields 12.2%.
Wherever big financial trouble exists, whether it’s in Turkey, Mexico or Argentina, you’ll find BBVA. The bank chose to move into emerging markets after the European debt crisis early in the decade and those bets are now coming back to haunt it.
With 6.64 billion shares outstanding, the bank needs $1.23 billion in earnings each quarter to pay the dividend, and its surprisingly close to that mark. Earnings were just 1.14 billion Euros for the second quarter, but 1.34 billion in the first. (The Euro is currently trading at $1.16.)
For the September quarter, due to be reported Oct. 26, the company is expected to just break even. But it has nearly 690 billion Euros of assets on the books, and the power to raise rates on borrowers due to financial instability.
It’s a dicey proposition, but those looking for the highest yields, just like those looking for the biggest capital gains, must assume some risks.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.