Twelve billion dollars is a lot of money. Right now, there are 120 companies in the S&P 500 index that have market caps of less than that amount. But there are a handful of companies that will pay out over $12 billion this year in dividends to shareholders.
Three of those huge dividend payers are Apple (NASDAQ:AAPL), AT&T (NYSE:T), and ExxonMobil (NYSE:XOM). How can these companies afford to be so generous to shareholders? And which of these dividend stocks is the best pick for investors? Let's take a look at these members of the $12 billion dividend club.
In its last fiscal year ending Sept. 30, 2017, Apple paid out a total of $12.6 billion in dividends. That reflected a jump from $12 billion paid in dividends in the previous fiscal year. It expects to pay out nearly $13 billion in dividends in the current fiscal year.
While that's a lot of money, Apple's dividend yield stands at only 1.44%. The company currently uses just over one-fourth of its earnings to fund the dividend program. What does it do with the rest of the $48 billion it made in profits last year? It bought back $32.9 billion worth of stock in the last fiscal year and added to its growing cash stockpile.
Nearly 62% of Apple's revenue comes from iPhone sales. Despite some concerns that demand for the new iPhone 8 could be lower than expected, there's no reason to worry that the company (or its dividend) is in any trouble. Early sales for the high-priced iPhone X appear to be very strong. Apple seems likely to continue doing what it's been doing: making a boatload of money and giving some of it back to shareholders in the form of dividends.
Telecommunications giant AT&T paid out dividends of $11.8 billion in 2016. However, the company bumped its dividend up a bit for 2017 and is on track to pay out a little over $12 billion this year.
AT&T's dividend yields 5.73%. High yields like that often raise questions about the sustainability of the dividend. Can AT&T keep the dividends flowing at current levels? Probably so. It's true that its payout ratio of nearly 94% is higher than investors would prefer. However, AT&T's strong cash flow should allow the company to continue its streak of 33 consecutive years of dividend increases.
While AT&T's dividend looks very attractive, the stock hasn't. Its share price has dropped around 20% so far this year in the wake of cord-cutting by video subscribers, weak growth for its wireless business, and natural disasters. AT&T is betting that its pending acquisition of Time Warner and rollout of 5G networks can turn things around.
ExxonMobil returned $12.5 billion to shareholders in 2016 in dividends. The huge oil and gas company should come close to paying out $13 billion in dividends this year.
Like AT&T, though, ExxonMobil has both a high yield and a high payout ratio. Its dividend currently yields 3.7%, but the company is using nearly all of its earnings to fund the dividend program. ExxonMobil is also using close to 85% of its free cash flow to pay out dividends.
My colleague Travis Hoium recently laid out a pretty solid case for why ExxonMobil's dividend could be in trouble. The biggest variable on which the company's fortunes hinge is the price of oil. If oil prices fall significantly, I think Travis will be proven right. Even if they don't, trends like increased use of electric vehicles could still hurt ExxonMobil enough to cause it to cut its dividend down the road.
Which is the best?
If your top priority is a high yield, I think AT&T is the best pick among these three stocks. On the other hand, if you're more concerned about the safety and dependability of the dividend, my view is that Apple wins.
Probably the best thing to focus on for many investors, though, is total return -- which includes both stock appreciation and dividend payouts. I suspect that Apple will generate the highest total returns of the three over the next few years. There is a wild card, though, that could shake things up. If some event occurs that causes the price of oil to skyrocket, ExxonMobil stock would probably spike. I wouldn't count on this happening, however, so my pick as the best of the group is Apple.
Keith Speights owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.