Dividends matter, even to the trigger-happy traders who make Robinhood Markets their home. Scrolling through the 100 top holdings among Robinhood accounts, you're going to find the usual suspects. You have a collection of meme stocks, tech titans, and penny stocks.
You'll also find a few dividend-paying stocks in the mix. There aren't many, but some of the names I find appealing beyond their payouts are AT&T (T 1.79%), Ford (F -0.71%), and Prospect Capital (PSEC 1.56%). Let's see why these three Robinhood faves are smart picks with quarterly distributions and the potential for capital appreciation on top of that.
One of the chunkiest yields among the 100 most widely owned stocks on Robinhood is AT&T. The telco icon is a wireless leader with a juicy current yield of 7.9%. It won't stay that way. AT&T expects to reduce its payout to roughly 5% from current levels after it completes its divestiture of WarnerMedia later this year.
WarnerMedia was initially seen as a way for AT&T to wean itself from its fading landline and other legacy businesses. Outside of AT&T's wireless arm, there wasn't a lot to position Ma Bell to thrive in the future, and WarnerMedia came with a content treasure trove including HBO, DC Comics, and Turner Entertainment Networks. It will go away later this year, and while AT&T is presumably keeping its cash cows, the dividend will move lower.
Analysts aren't holding out for a lot of growth on the top or bottom line. However, with AT&T fetching less than 10 times forward earnings after it spins off WarnerMedia, it still has enough wiggle room to keep building on that payout as it refashions a new path for growth.
It may seem wrong to wedge Ford into a story about high-paying stocks. Ford was a high-yielding stock just before the pandemic. It was yielding 6.5% at the the end of 2019, but then it suspended its payout when the COVID-19 shutdowns slammed the automotive industry. It finally felt comfortable enough to resume its distributions two months ago, but paying 33% less every three months than before. The stock has also more than doubled over the past two years, so its current yield is a modest 1.6%. However, if you're buying Ford now, you're not doing it for the quarterly disbursements.
Ford took off last year on the strength of buzz for its big push into electric vehicles. Even last week, when most of last year's winners lost ground, Ford soared nearly 18% for the first trading week of 2022. Despite more than doubling in 2021, the stock is trading at a reasonable 12 times this new year's projected earnings. Ford has beaten analyst earnings estimates by 89% or better in each of the past four quarters, so there's a good chance the stock will ultimately be even cheaper than we think it is once we get the final earnings number for 2022.
The riskiest of the three stocks also packs the largest payout. Prospect Capital is a business development company (BDC) that makes debt and equity investments in middle-market companies. Prospect Capital has investments in 124 different business, valued at $6.4 billion as of the end of September.
Prospect Capital lends money to the companies, and the interest it collects on that debt funds its current yield of 8.3%. Prospect Capital also receives equity stakes, and smart moves there find the net asset value (NAV) for Prospect Capital climbing from $8.40 to $10.12 a share over the past year. Prospect Capital is trading at a discount to its NAV, but that's common for BDCs.
The downside is that a recession can find some of Prospect Capital going under. Rising rates this year will weigh on BDCs, but Prospect Capital fares somewhat well in that case with its underleveraged balance sheet.