The Top 5 Dividend Stocks Right Now

Your dividends depend on two things: a company's yield and its ability to grow those coveted payouts.

Ideally, you'll find the best of both worlds: a stock with a high yield, and payouts that company can sustain and grow. Such stocks will pay out the most cash to shareholders for long periods of time.

When you identify dividend stocks with both factors, the returns can be tremendous. Consider the "top five dividend stocks" over the last five years -- i.e., the five stocks that yielded the most to lucky shareholders who bought five years ago:

Company

5-Year Payout

Total Return

Atlantic Power

55%

102%

Vector Group

51%

108%

Consolidated Communications

50%

94%

Southern Copper

49%

174%

Genco Shipping

46%*

(40%)

     

S&P 500

8%

11%

Source: Capital IQ, a division of Standard & Poor's. Includes U.S. companies traded over major exchanges that were valued at more than $300 million at start of period. Excludes trusts and partnerships. *Suspended dividends in 2009.

In just five years, investors earned back half of their initial investment -- just in dividends! And in most cases, their total returns substantially outperformed the market.

So which names will yield investors the most dividends over the next five years? No one can answer that question with certainty. However, we can calculate an implied five-year payout if we use estimated earnings growth as a proxy for dividend growth. To eliminate names with unsustainable payouts, I also filtered out stocks whose payouts exceeded net income.

The winners
All of the top 10 companies were trusts or partnerships -- the highest ranked was American Capital Agency (Nasdaq: AGNC  ) -- which are generally required to distribute the vast majority of their earnings to shareholders. To make up for the lack of retained capital, they frequently issue new shares. I'm generally bullish on mortgage REITs and have even bought shares of Annaly Capital (NYSE: NLY  ) (which is ranked number five on the list) for the real-money Dada portfolio I co-manage. But I excluded REITs for the purposes of this study because their frequent capital raises would have made the comparison unfair.

Without further ado, here are the five companies with the highest implied payouts over the next five years:

Company

Dividend Yield

Consensus 5-Year Earnings Growth Estimate

Implied 5-Year Payout

Southern Copper (Nasdaq: SCCO  )

6.7%

26%

55%

United Online (Nasdaq: UNTD  )

6.2%

12%

44%

Integrys Energy Group (NYSE: TEG  )

5.1%

14%

38%

Mercury General (NYSE: MCY  )

5.9%

8%

37%

Leggett & Platt (NYSE: LEG  )

4.2%

20%

37%

Sources: Capital IQ and author's calculations.

Southern Copper produces copper (naturally), as well as molybdenum, a metal used as a steel alloy. As the largest owner of copper reserves in the world, the giant is able to leverage its economies of scale to generate high margins and returns on assets. Of course, returns over the next five years are subject to prices it can fetch for these two commodities. But the stock pays a high yield today, and if earnings grow anywhere near as high as the 26% analysts have estimated (an admittedly tall order), the stock should pay out considerable dividends over the coming years.

United Online provides flowers over the Internet, "premier nostalgia content" like media footage from the latter half of the 20th century, and dial-up Internet access. Growth of 12% is less of a challenge than it may sound for a company in these markets because United will be on pace if it can manage to rebound to its peak 2007 earnings per share within three years. On the other hand, that rebound has yet to begin to take effect; sales and operating income continue to struggle.

Integrys (love that name!) is a Midwestern electric and natural gas utility that has paid a dividend for 70 consecutive years. The company has been focused on cost cutting and increasing rates. It plans on spending heavily on plants and equipment over the next few years to increase earnings.

Mercury General writes insurance policies for passenger and commercial autos, homeowners, mechanical breakdown, and fire, among other things. Book value per share grew quickly until hitting the skids in 2008, when its portfolio took a hit. Important markets like California auto and Florida homeowners have remained soft (Mercury is exiting Florida housing), though it did manage to produce underwriting profit in the most recent quarter. If the pricing environment improves, 8% growth should be achievable.

Leggett & Platt makes home furnishings, commercial fixtures and furniture, industrial materials like steel rods and wire, and accessories for auto seats. The recession took a big toll, particularly in home furnishings, though sales began to bounce back last year across all segments. The company boasts a 40-year record of dividend increases, but analysts' 20% growth estimate seems optimistic. Management claims to be shooting for 4%-5% long term growth.

Of course, whether these payouts materialize depends in part on the accuracy of those growth estimates. Before buying any of these stocks for their implied five-year yields, it's important to investigate further to decide whether the growth forecasts are achievable.

If you'd like more help finding superior dividend stocks, you can find out which names The Motley Fool's top analysts love right now. Simply enter your email address in the box below for free, instant access to "13 High-Yielding Stocks to Buy Today."

At the time of publication, Ilan Moscovitz didn't own shares of any companies mentioned. The Fool owns shares of Annaly Capital Management. 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.


Read/Post Comments (13) | Recommend This Article (45)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 14, 2011, at 9:49 AM, Prarychkn wrote:

    I am registered with Motley Fool. I followed all of

    your instructions to the letter to obtain the report

    "13 Dividend Stocks You Should Buy Now". But

    nothing happened. If you can, please send to my

    email address - z90mpg@yahoo.com. Thanks.

  • Report this Comment On May 14, 2011, at 12:44 PM, StarWitchDoctor wrote:

    Liked the article and the first chapter.

    Hm, not a bad Idea.

    Now I note that my fool services do not rely on the women fool employees enough. Whats up doc?

    Scott

  • Report this Comment On May 14, 2011, at 1:26 PM, Cookucletus wrote:

    I looked at scco a few weeks ago as a dividend investment. The annual dividend of 2.24 is greater than the annual earnings of 1.94 (yahoo finance) which led me to believe the divy is unsustainable. They have a lot of good numbers in profit margin, ROE, growth, etc. It seems unlikely a capital intensive mining operation will increase a dividend that is already higher than it's earnings.

  • Report this Comment On May 14, 2011, at 2:49 PM, TMFDiogenes wrote:

    Re SCCO, Yahoo is using trailing earnings and the forward dividend. If you use the same time frame, it's 1.94 eps and 1.83 for dividends. Still potentially close enough to be a concern, but it's not actually higher than earnings.

    Ilan

  • Report this Comment On May 14, 2011, at 4:31 PM, floridaboy32826 wrote:

    I'm seriously considering getting American Capital Agency (AGNC). The amazing dividend has been steady for a while now. What would have to happen for the company to not be able to sustain the high dividend it puts out? The Fed raising interest rates???

  • Report this Comment On May 14, 2011, at 4:43 PM, TMFDiogenes wrote:

    The dividend could fluctuate a little with long term rates and their portfolio holdings, etc, but the Fed raising interest rates or Congress pulling the rug out from under housing by privatizing Fannie/Freddie would be the biggest dangers. Both are unlikely for a couple of years, imho.

    Ilan

  • Report this Comment On May 14, 2011, at 10:17 PM, tomd728 wrote:

    Timely piece for dividend lovers and the Market direction ahead.

    I,like many others, feel we are in for a tough ride ahead after two years of bliss.

    All that aside the choices are a great place to start

    but I simply can't put SCCO in my bag due to the price

    gyrations with a high of 50 + and a current price of

    34. It would take one hell of a dividend yield to cover

    for anyone who bought in on high side.Sure, copper could pop all over again and with the yield off 34 plus

    upside it's party time.

    Not much for parties but thank you for your thoughtful piece and I'm shopping the list.

    Best,

    Tom Durkin (CelticRiver)

  • Report this Comment On May 15, 2011, at 9:51 AM, TruffelPig wrote:

    Hmm, why are the pipeline partenerships and energy partnerships missing like LINE, BBEP, KMP, etc. etc. - they yield 7% and grow.

  • Report this Comment On May 15, 2011, at 11:23 AM, styxriver wrote:

    I agree with The Motley Fool with their suggestions of 6 yrs ago. PF Newsletter recommended SCCO, AT & CNSL about the same time which I tookm a position in. The best one was SCCO, it split in 2006 and again in 2008 adjusting the basis from $80 to $10 peer share. I still have all 3. SCCO is a little shakey now because the country of Peru turned down a certification of a new mine-but SCCO will recover. I also agree with TEG. I believe Celticriver on 3 of the new proposals. These will be in trouble in the next recession soon to come. Trufflepig is on the right track with LINE which I have owned for 6 yrs. I also suggest EPD(a super tax shelter). Cover your buys with puts and make extra money on selling covered calls. Happy trading.

  • Report this Comment On May 15, 2011, at 12:30 PM, mikecart1 wrote:

    This company beats all of yours: MO. Learn it, live it, love it.

    :D

  • Report this Comment On May 15, 2011, at 2:06 PM, TMFDiogenes wrote:

    @TruffelPig

    I excluded trusts and partnerships because the comparison would have been unfair -- the 5-year payout ratio doesn't account for share issuance. If you're curious, LGCY, ETP, TCLP, and PSE would have been fairly high on the list though.

    Ilan

  • Report this Comment On May 16, 2011, at 2:31 PM, sailrmac wrote:

    All the stocks listed are carrying 70%+ payout ratio's. I think this makes the earnings growth estimates rather suspect. They have to fund that growth while retaining less than 30% or raise the necessary funds from increased borrow or share issuance.

  • Report this Comment On May 19, 2011, at 8:04 PM, TruffelPig wrote:

    @IIan: TY for clarification. I own LINE and AGNC (and actually some NAT) for dividends.

Add your comment.

DocumentId: 1494471, ~/Articles/ArticleHandler.aspx, 4/19/2014 11:02:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement