If you went by popular impressions of a company, you would probably think that the most widely held stocks among users of the Robinhood Markets (HOOD 1.33%) trading platform were meme stocks like Gamestop and AMC Entertainment Holdings.
And while some of the more widely held stocks on Robinhood are arguably speculative stocks, there is also a fair share of solid and reliable dividend stocks among the holdings of Robinhood users.
Here are three quality dividend stocks that are widely held by Robinhood users and also happen to offer yields roughly two to five times higher than the S&P 500's current 1.3% yield average.
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1. Coca-Cola: The non-alcoholic beverage heavyweight
Mega-cap beverage company Coca-Cola (KO 0.91%) has a $243 billion market capitalization and currently sports a refreshing 3% yield. But what is it that helps to support Coca-Cola's dividend?
The company owns a portfolio of roughly 200 beverage brands including the eponymous Coca-Cola, bottled water brand Dasani, and sports drink brand Powerade. It sells its beverages in over 200 countries and territories throughout the world.
Coca-Cola's 13% share of total beverage volume in developed markets -- where 20% of the global population resides -- leaves some opportunity for future growth. But the real growth potential that Coca-Cola believes it can capitalize on is in developing or emerging markets (i.e., India and China) where 80% of the global population lives and Coca-Cola's volume share is just 5%.
Coca-Cola's heavy reliance on away-from-home channels like restaurants and theme parks led the company's adjusted earnings per share (EPS) to decline 7.6% last year due to temporary shutdowns caused by the pandemic. With global vaccination rates steadily going higher and everyone adapting to living with COVID-19, Coca-Cola's business should recover along with the global economy.
Analysts estimate Coca-Cola's adjusted EPS will grow 17% this year and 10% over the next five years. That should give the company plenty of free cash flow to continue funding its dividend and growing it as well. Its dividend payout ratio is currently in the low-70% range, giving Coca-Cola enough cash to keep building on its long-term status as a Dividend King (a stock with at least 50 consecutive years of annual dividend increases).
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2. ExxonMobil: The integrated energy giant
Valued at $275 billion, integrated energy company ExxonMobil (XOM 1.78%) recently raised its dividend payout for the 39th consecutive year, reaffirming its status as a Dividend Aristocrat (an S&P 500 stock with at least 25 years of consecutive annual dividend increases). The dividend on this stock offers investors an impressive 5.46% dividend yield.
While it's understandable that investors would be concerned about the viability of ExxonMobil with the ongoing shift from fossil fuels to renewable energy to power the global economy, I believe these fears are overblown. That's because the Intergovernmental Panel on Climate Change (IPCC) predicts that oil and natural gas will only drop slightly from 55% of the global energy mix in 2019 to 48% by 2040. Plus, the gradually decreasing oil and natural gas energy mix should be offset by population growth that will result in an aggregate increase in demand for global energy.
ExxonMobil appears well-positioned to benefit from this steady demand based on its size and scale. ExxonMobil wells were producing about 4 million oil-equivalent barrels of net oil and natural gas per day in 2020. Its refineries are processing roughly 5 million barrels per day of petroleum products into fuels and lubricants that are pivotal to the daily lives of consumers. Finally, ExxonMobil's chemicals segment sold over 25 million metric tons of chemicals to customers last year, which are used in everything from food packaging to vehicles.
While ExxonMobil does have a controversial past as it relates to the environment, its current commitment to try and address this major global issue could win it some favor with Environmental, Social, and Governance-focused investors. Stepping up to tackle man-made climate change, ExxonMobil is calling on its industry and governments to raise $100 billion to fund carbon capture and storage technology to limit carbon emissions that go along with the use of fossil fuels.
ExxonMobil's high yield appears to be supported by its earnings. Its payout ratio will be in the low-70% range for this year. Since analysts are predicting ExxonMobil's earnings will grow 19% next year, the payout should become even more sustainable.
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3. Energy Transfer: The midstream titan
Similar to ExxonMobil, the $26 billion (by market cap) master limited partnership (MLP) pipeline company Energy Transfer (ET +0.52%) will benefit from strong and sustained demand for oil and natural gas. The earnings it generates should be able to support the current 6.68% yield going forward. Its share price currently around $9.12 is likely a contributing factor in its popularity with Robinhood's users. Fortunately, Energy Transfer is also an essential business with a solid business model.
Energy Transfer's 90,000 miles of pipelines throughout 38 states are responsible for moving 30% of the U.S.'s natural gas and oil. Simply put, Energy Transfer's pipelines are what fuel the modern economy.
Energy Transfer's business model resembles a utility in that its revenue tends to be predictable and consistent, regardless of the broader economy's movements up or down. Oil and gas companies need its pipelines to transfer fuel around the country and pay a transfer fee that isn't affected by the ever-changing price of the oil or gas. To this point, 95% of Energy Transfer's estimated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) this year will be derived from fixed fee-based contracts. So long as Energy Transfer's customers are able to pay for its services, Energy Transfer will be able to support its dividend and meet its debt obligations.
Despite COVID-19's disruptions weighing West Texas Intermediate (WTI) crude down to an average price of $39 a barrel last year, Energy Transfer's customers were still able to pay the company for its services. Energy Transfer's distributable cash flow (DCF) only fell 8.8% over 2019. Energy Transfer's DCF was enough to pay its distribution 2.3 times over last year, which points to a distribution strong enough to withstand almost any economic downturn. And with commodity prices surging this year as the world returns to a sense of normalcy, Energy Transfer's DCF should rebound this year to cover its distribution even further.
