6 Super-High Payout Ratio Dividend Stocks To Watch In 2020
Let’s be honest, the more you dig into investing, the more intriguing high payout ratio dividend stocks get. Yet take note, a bond is safer and common stock has more potential gains. Leaving this bond-stock hybrid somewhere in the middle.
This leads to the question: Is this hybrid worth putting in your portfolio? The answer is a resounding, yes!
And here’s the most intriguing reason to look out for high payout ratio dividend stocks, it’s a sign of stock maturity and stability.
These are the most common questions regarding payout ratio dividend stocks:
What is Dividend Payout Ratio?
This is the percentage of earnings paid out to shareholders in dividends vs. the earnings kept for reinvestment. It is also known as the “payout ratio” and reflects the maturity and stability of a company. For instance, a young company might distribute a low percentage payout ratio in favor of keeping earnings to reinvest and grow the business. Earnings kept by a company are known as retained earnings.
How is the Dividend Payout Ratio calculated?
To calculate the payout ratio the company’s annualized revenue per share is divided by calendar year earnings per share.
What to watch out for with Payout Ratio’s?
As much as a high payout ratio is a sign of maturity and stability, it can also be a sign that the company is on the precipice of a payout ratio dip or a complete cut of dividends. So always be watchful of the company’s other financials to make sure it remains strong across the board.
What is considered high for a payout ratio?
55% to 75% is considered a high payout ratio. It means a company is giving more than half of its earnings out as dividends. If a company’s payout ratio is 95% to 150% or more, experts say that only two things can happen: the dividend is cut or eliminated.
Why You Should Care about the Dividend Payout Ratio?
The payout ratio is a great indicator for the company. Especially when it goes into dangerously high-levels. A high payout ratio could indicate that the company is adding gloss to a particularly troubled period or that it is going into a decline. So always check the projected future earnings of a company and try to find expert predictions on possible future dividend payout ratios. Plus, if holding shares in a company that pays out dividends monitor announcements about the company’s liquidity and cash flow.
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Despite 75% being considered high, we’ve picked out six major company’s with payout ratios above 100%, some are even close to 300%. These super-high payout ratio dividend stocks are definitely worth watching in 2020:
AT&T (T) – 104%
- AT&T is an elite company that has raised its dividends every year for three decades.
- As a major in wireless technology, it owns cell, cable, satellite, and entertainment properties.
- AT&T isn’t a stock that’s going to grow in value, it is already at its peak.
- Investors consider AT&T a stock that preserves capital and provides dividends.
PepsiCo, Inc. (PEP) – 108%
- PepsiCo, Inc. is a global food and beverage company.
- Share prices for PEP have continued to rise over 20-years.
- For 47 consecutive years, PEP has paid out its annual dividends. Increasing each time.
- While the company is paying out above its five-year yield, the share price has fallen over the last 12-months. A possible sign the payout ratio is about to fall.
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Energy Transfer (ET) – 170%
- Energy Transfer is a natural gas pipeline company.
- ET operates as a master limited partnership (MLP), what this means is that the company avoids corporate tax but must distribute all revenue to its investors.
- This MLP structure results in large investor payouts.
- ET is considered one of the best dividend stocks of 2020 despite its worryingly high 170% payout ratio.
Bristol-Myers Squibb (BMY) – 207%
- Bristol-Myers Squibb is a Pharmaceutical giant.
- In 2019 BMY consumed rival Celgene and gained 28% in value.
- BMY is considered one of the top dividend stocks to own in 2020.
- Experts believe BMY will grow earnings by 15% annually, up to 2025.
The Coca Cola Company (KO) – 271%
- The Coca-Cola Company is a global beverage company.
- KO is a freak when it comes to its dangerously high payout ratio. With the company increasing and paying out dividends for 56 consecutive years.
- What shocks is that despite the payout ratio, share prices have not been in decline because demand remains strong.
- Despite what analysts say about super-high payout ratio dividend stocks, KO continues to defy expert wisdom.
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Healthpeak Properties (PEAK) – 289%
- PEAK specializes in health care real estate. Including senior housing, medical offices, and more.
- Healthpeak Properties is a Real estate investment trust (REIT), which means it can avoid paying corporate taxes if it follows rules set by the government.
- One of the included rules is that PEAK must pay-out at least 90% of its income to shareholders yearly.
- PEAK was named as one of the best stocks to buy for 2020.