Stocks may have made up most of what was lost in February and March, shortly after the new coronavirus began to spread in the US, but few investors are naive enough to think that the market and the economies are as strong as they were earlier this year. The recent optimism is based mainly on the hope of a quick recovery.
With that as a backdrop, it wouldn’t be a terrible idea to step back and let the dividends work a little while the growth-oriented names determine where they should really be trading. You certainly deserve mental rest! Here is a roundup of four top dividend names, each of which currently produces more than 4% (compared to the current average S&P 500 return of just under 2%).
Image source: Getty Images.
Verizon’s simplicity is its strength
Current dividend yield: 4.5%
There is nothing particularly fascinating about the name of telecommunications. Verizon Communications (NYSE: VZ). He owns and operates Yahoo and AOL web portals, but now they are little more than favorite projects. Verizon is almost exclusively a communications name, and is preparing for more of the same in the future. This year, it increased its capital spending budget by $ 500 million more than last year’s planned spending, primarily to expand its 5G network that most customers will never see but will certainly be happy to connect.
Verizon may be a little boring, but boring also means it is predictable. The company’s revenue growth may typically be single-digit, but this year’s expected (and typical) income of $ 4.75 per share is far more than enough to support the current annualized dividend payment of $ 2.46 per share. .
The chart below tells the story, presenting not only Verizon’s dividend history ($ 0.5775 per share in early 2017 to $ 0.6150 in early 2020), but also earnings per share and income during those years (overall increase). Analysts’ median forecasts expand trends in actual results already produced by the company. The advent of a combined Sprint and T Mobile It appears to pose a threat to Verizon’s dominance of the wireless space, but even before they joined, the two companies were either collectively unable or planning to spend more than Verizon.
Data sources: Thomson Reuters / Refinitiv. Graphic by author.
AbbVie has its fair share of blockbusters
Current dividend yield: 4.9%
AbbVie (NYSE: ABBV) It is one of several pharmaceutical names that have been caught up in the fervor linked to the race for a coronavirus vaccine. Although her HIV drug Kaletra was a failure as a treatment for COVID-19, she is still working with academic partners on a solution.
However, the potential for coronavirus therapy is a terrible reason to bet on an action. If this coronavirus disappears or eventually mutates, the work done on a current vaccine would not work. Then after the pandemic ends, the drug companies will keep the wallets and pipes they built before the virus took over.
Fortunately for AbbVie and its shareholders, the company’s portfolio was already impressive. Its cancer drug Opdivo ranks as one of the world’s top 10 best-selling drugs, and Evaluate Pharma estimates that its Humira will remain in its place as the world’s best-selling drug until 2024. Even Humira’s deteriorating patent protection may not necessarily marks the end of the franchise’s value for AbbVie, which is also co-owner of Imbruvica with Johnson and Johnson. That is another top 10 drug.
It’s the type of product base that not only generates recurring income and earnings, but has helped drive AbbVie’s dividend payment growth of 47 consecutive years. The following chart puts into perspective the recent past and the foreseeable future. Earnings per share is roughly double the amount paid in dividends per share, leaving plenty of surplus income to invest in drugs that continue to drive income growth … a virtuous cycle.
Data sources: Thomson Reuters / Refinitiv. Graphic by author.
Investors have undervalued Duke Energy
Current dividend yield: 4.8%
It is not surprising to see a public service stock on a list of dividend payers to consider owning it; They are ideal income-oriented companies simply because their customers have to pay their electricity bills every month. What is unusual about Duke Energy‘s (NYSE: DUK) earning a place on this particular list is the fact that, in most cases, public service stocks function like bonds, going up and down, so that your dividend yields reflect the interest rates prevailing in that moment. Right now, interest rates are staying close to or even at record lows, but Duke’s performance has not followed suit because its shares have not risen to push performance down. Quite the contrary has been the case.
This is one of Mr. Market’s mistakes that translates into opportunities for investors who pay close attention to the situation. While Duke faces and will face challenges stemming from the economic impact of the coronavirus pandemic, such as changing gas prices that alter its billing rates, this is nothing new for the company. Nothing fundamental has changed in your business that generates recurring income. The same goes for your constant annual earnings.
The following graphic visually shows this point. Although the changes in the seasons cause an ebb and flow in profits and revenues, the annualized growth of both is reliable. Analysts forecast the same type of growth that generates dividends in the future.
Data sources: Thomson Reuters / Refinitiv. Graphic by author.
LyondellBasell is not as closely tied to energy prices.
Current dividend yield: 6.6%
Add LyondellBasell (NYSE: LYB) to your list of dividend-worthy stocks that are currently paying more than 4%. This chemical company currently yields 6.4%.
LyondellBasell’s shares have not performed particularly well this year, which is the main reason why its performance is now so high. They are down nearly 30% since their February peak, thanks to the global coronavirus outbreak (and an April discount of Bank of America rooted in margin concerns), and are off nearly 40% from their November high. Investors have largely bundled oil stocks and chemical companies linked to the energy industry by supplying refiners and drillers with the consumables needed to extract oil and create fuel.
However, connecting only those power related points is a considerable mistake. Refining supplies accounted for about a quarter of last year’s sales, while oil and oil intermediates accounted for almost another quarter of its top line. The polymers and olefins used to make plastics and some raw materials make up about half of its business, and prices in those markets are not as volatile as energy prices. The use of these chemicals for the manufacture of plastics is even more consistent than their generally stable prices. Put it all together and what you have is a misunderstood company that investors have unduly punished.
The revenue history and forecast shown in the chart below show that a recent deterioration is likely to persist until 2022 according to analyst median forecasts. That is likely to demonstrate a continuing drag on earnings per share. But, even then, LyondellBasell is expected to continue earning more than its dividend payment expects once the coronavirus dust settles.
Data sources: Thomson Reuters / Refinitiv. Graphic by author.
