5 Safe High Yield Dividend Stocks to Watch in April 2017
Safe High Yield Dividend Stocks for April 2017
Income investors looking for a steady source of cash flow should look at stocks that pay a dividend to shareholders. This way, an income could be earned without selling your shares. One category, in particular, that is quite appealing is that of stocks that pay a high dividend yield. This article will focus on safe, high yield divided stocks for April 2017.
A dividend yield is calculated by taking the company’s annual dividend payment and dividing it by the share price. For example, if a company paid a $1.00 annual dividend per share and the share price was $20.00, the dividend yield would be five percent ($1.00 ÷ $20.00= 0.05). Therefore, based on a $20.00 purchase price, five percent would be returned as cash. Needless to say, dividend growth would increase the yield on the purchase.
High yield dividend stocks have a dividend yield that is higher than that of a benchmark average. The ideal average to use is that of 10-year U.S. Treasury notes, as there is a lower risk assumed with purchasing a Treasury note over a stock.
At the end of the day, investors could easily invest their capital in Treasury notes and earn the interest payment. Since more risk is associated with a dividend stock with a high yield, that’s why a higher return is expected. If a 10-year Treasury note were to be purchased, the yield would be 2.3%, so a stock would need to offer a yield higher than that.
It is also important that the dividend is safe. Consider the company and the sector it is part of, and how it would perform in different types of economies. Use past revenue trends to get an idea of how the future could turn out.
The focus should be on non-cyclical businesses, those which are essential to the economy and sell products and services that are always needed. These would include food, personal care products, beverages, and household items.
Something else to consider is the company’s payout ratio, which will provide a lot of information about the safety of the dividend. The percentage paid out as a dividend, a payout ratio of 50%, for instance, would mean that $0.50 from each dollar of earnings is being rewarded to investors. This would be a conservative payout, while a more extreme ratio would be above 100%, in which case the company would be paying out more than it is earning.
The funding of the dividend shortfall is done by either using debt or issuing more shares. These could result in the dividend payment being cut or outright eliminated, so having this information before making an investment could save you a lot of time and money.
Below is more info on what I believe to be the best high dividend stocks to watch in 2017.
High Dividend Stocks List
|Company Name||Stock Symbol||Price||Dividend Yield|
|General Motors Company||GM||$35.58||4.27%|
|Gilead Sciences, Inc.||GILD||$67.26||3.09%|
1. General Motors Company
General Motors Company (NYSE:GM) is a company that needs no introduction, due to its over 100 years of business.
GM stock is currently trading at nearly half the valuation when compared to its peers in the sector, based on their price-to-earnings (P/E) ratios. Calculated by taking the share price and dividing it by the company’s earnings for a 12-month period, a lower P/E ratio is better for investors, and this is the case for GM stock.
GM’s business has seen double-digit, year-over-year growth. One area that the company is focusing on in particular is China, which is seeing the highest growth and accounts for more than one-third of GM’s sales outside North America. GM plans to introduce more than 60 new models to the country by 2020, which includes all brands within GM, such as “Chevrolet” and “Cadillac.” (Source: “General Motors Announces Growth Strategy for China,” General Motors Company, March 21, 2016.)
Even though GM stock would be considered a high yield dividend stock, it is also known for dividend growth. Over the past three years, the dividend has seen an increase of 26%. There could be more dividend hikes in the future, because the payout ratio is a very modest 25%.
Share buybacks have also been used to return money to shareholders. In January 2016, a $4.0-billion share repurchase program was approved, in part because those within GM believe the shares are undervalued. (Source: “Stock Repurchase Program,” General Motors Company, last accessed March 29, 2017.)
2. Gilead Sciences, Inc.
Gilead Sciences, Inc. (NASDAQ:GILD) is a company with operations in more than 30 countries around the world. The focus is on the discovery, development, and commercialization of medicinal treatment. Gilead products help treat the likes of liver disease, cancer, and inflammatory and respiratory diseases.
Gilead has a very solid balance sheet, with approximately $32.4 billion in cash and cash equivalents. This amount would represent about 37% of the market cap of the entire company. (Source: “Gilead Sciences Announces Fourth Quarter and Full Year 2016 Financial Results,” Gilead Sciences, Inc., February 7, 2017.)
The company also shows strong financial discipline when it comes to investing capital into research and development (R&D), spending no more than 20% on the segment. This is very important to consider, because an administration can easily lose control of spending.
There are over 25 treatments currently in the pipeline, which will add to future growth of Gilead’s top and bottom lines. These treatments are currently in various stages; some still at step one, and others possibly hitting store shelves soon. This will increase the margins on the overall business, due to reduced R&D spending, at least until new products come into the picture.
One last reason to consider GILD stock is its growing quarterly dividend. There has only been eight dividend payments and two increases in the company’s history. However, with a large amount of cash and controlled spending, it is highly likely to see the dividend continue to grow.
3 . Target Corporation
Target Corporation (NYSE:TGT) stock is down 33% over the last year. So here’s the question: is Target a high dividend stock to watch now?
Even though the stock price is down, the dividend yield is higher now than it was a year ago. Over the long term, this could result in a higher rate of return.
The shares are currently yielding 4.35%, based on a trading price of $55.22.
When it comes to the actual dividend payment, only 50% is being paid out from earnings, suggesting safety. Target’s earnings are also very steady and growing as each year.
TGT stock has increased its dividend every year for the past 49 years. As long as this growth continues, the yield will only increase.
Target has also incorporated share repurchase programs, leaving fewer shares available in the marketplace. Buybacks also mean that existing shareholders own a larger portion of the company. The current buyback program is for $10.0 billion and, once completed, will be followed by another one for $5.0 billion. (Source: “Target Reports Third Quarter 2016 Earnings,” Target Corporation, November 16, 2016)
The continued buying of the shares could be looked at as providing support to the share price. Since the price is down over the last year, Target is able to repurchase more shares with the same amount of capital as planned.
4. Metlife Inc
Metlife Inc (NYSE:MET) is one of the largest life insurance companies in the U.S. It also provides annuity products, employee benefits services, and asset management.
According to its price-to-book ratio of 0.9, MET stock is trading at a discount, compared to the book value of the company. This means if the shares were purchased, $0.90 would be paid for each dollar of assets. The immediate affect for investors would be purchasing the company below liquidation value.
One positive catalyst that should increase this ratio is rising interest rates, which have been on a steady upward trend over the past two years. Rates are currently near historic lows, and really have no direction to go but up. Since MET stock operates in the insurance segment of the market, the company needs to manage its assets and liabilities to most benefit from the rising interest rates.
The way this works is as follows: as individuals go to Metlife for their insurance needs, money is given to the company and an agreement is made. When a claim is submitted by a policyholder, Metlife pays a certain amount based on the agreement. Then, since Metlife knows the liabilities, it takes the money and invests it. The goal is to generate a higher rate of return then what was paid out to the policyholder. As interest rates increase, there will be more opportunities for Metlife to generate a higher return, and, more importantly, a larger spread.
The valuation increase for the price-to-book ratio will not occur overnight. But, in the meantime, investors could earn an annually increasing dividend; it has grown 46% over the past three years.
5. AT&T Inc.
AT&T Inc. (NYSE:T) is one of the largest telecommunications companies in the U.S., with more than 135.0 million customers.
A blue-chip with high dividends, AT&T enjoys a large customer base. Shares of T stock are yielding 4.72%, going by the market price of $41.53.
Every year for 32 years, upon its review in October, the dividend sees an increase. This current growth streak has helped AT&T earn a place on the S&P 500 Dividend Aristocrats Index. This index features only 52, all of which are Fortune 500 companies that have increased their dividend for at least 25 consecutive years.
AT&T doesn’t require a lot of capital to operate. In addition, any way that inflation that raises operating costs is passed along to customers and clients who use AT&T’s services. This keeps the gross and net margins of the business around the same level.
Lastly, AT&T operates in the telecommunications sector, which has little direct competition. As such, the market share does not really change much, meaning the revenue is steady and reliable.