Stocks that pay out steady and increasing dividends are always appreciated by investors, but in times of market uncertainty and volatility, it is even more important. Not only does that regular cash payment provide income and offset potential losses, it also signals the stability and earnings power of the company.
These have been very trying times for many companies, but when it comes to delivering on dividends, three companies stand out. AT&T (T 1.27%), Prudential Financial (PRU 2.43%), and Wells Fargo (WFC 1.52%) are all paying out yields of more than 5% of their share price.
Not only has the telecommunications company steadily increased its dividend over the past 35 years, but it has delivered it at a consistently high yield rate. In March, the company declared a quarterly dividend of $0.52 per share for the second quarter, the same as the first quarter and up from $0.51 per share a year ago. With the stock trading at about $29 per share at Friday's close, that's a yield rate of approximately 7%, which is well above the average. The payout ratio is high, as AT&T pays out $2.08 in dividends per share annually with $1.96 in diluted earnings per share. However, it does have $3.71 per share in free cash flow. .
Despite the effects of the coronavirus, the company posted solid earnings in the first quarter. Net income was $4.6 billion, up from $4.1 billion in the second quarter of 2019. Earnings per share was up 12% of $0.63 year over year, even accounting for a $0.05 loss per share in COVID-19-related costs. With $3.9 billion in cash from operations in the quarter, the company should continue to deliver on its dividend.
"We remain committed to our dividend. In fact, we finished last year with our dividend as a percent of free cash flow a little over 50%," said outgoing chairman and CEO Randall Stephenson on the first-quarter earnings call. "And even with the current economic crisis, we expect the payout ratio in 2020 to be in the 60s, and we're targeting the low end of that range, which is a very comfortable level for us. And last, we'll continue to pay down debt and maintain high-quality credit metrics," added Stephenson, who is stepping down after 13 years at the helm on July 1, handing the reins over to President and COO John Stankey.
The insurance giant upped its quarterly dividend to $1.10 per share in the first quarter, a 10% increase over the previous quarter. With the stock trading around $53 per share, Prudential offers a nice yield rate of around 8% with a payout ratio of around 37%. That's an annual dividend of $4.40 per share -- not too shabby. The dividend has increased steadily for the past eight years.
The company posted solid earnings last year with $4.2 billion in net income -- up 3.7% from the previous year, with earnings per share up 6.3% for the year to $10.11 per share. The stock price is down around 43% for the year but has bounced back 36% in the past month. This is going to be a difficult market for the life insurance sector, as Fitch downgraded its outlook to negative. Life insurers are more sensitive to interest rates and will have more pay outs due to the coronavirus, said Keith Buckley, managing director and global head of insurance ratings at Fitch Ratings.
However, Prudential has a solid cash position, and its plans to sell Prudential of Korea to KB Financial Group for $1.9 billion, announced this month, will add to that and help it weather this storm.
Wells Fargo got slammed in the first quarter, reporting net income of $653 million, or $0.01 per diluted share. That's down 89% from $5.9 billion in earnings in the first quarter of 2019 and earnings per share of $1.20 per share. It's down from $2.9 billion in net income, or $0.60 per share, for the fourth quarter of 2019. The results were severely affected by $3.1 billion in reserves set aside for loan losses for customers hurt by the coronavirus. The bank also suffered a $950 million "impairment of securities" caused by economic and market conditions. This had a combined $0.73 per share effect on the share price.
That's a lot of bad news, but the good news is that the bank maintained its relatively high $0.51 per share quarterly dividend. The company is paying out an extremely high 7.6% yield rate with a payout ratio based on the trailing 12 months of 46%. Through all the lawsuits, scandals, and market corrections the company has endured over the years, it has maintained or increased its dividend for eight straight years.
The stock price is down about 50% year to date and is near 52-week lows. This will be a difficult year for Wells Fargo given the likely recession and low interest rates, but the company has maintained good liquidity and capital with a liquidity coverage ratio (LCR) of 121%, well over the regulatory minimum of 100%, and common equity tier 1 ratio of 10.7%, which also exceeds the regulatory minimum. It should be able to get through a difficult 2020 with its dividend intact and start increasing earnings in 2021.