Interest yields are extremely low right now, which is great for borrowers (especially the U.S. government) but probably unprofitable for lenders. For investors seeking relatively stable returns, corporate dividends could be more lucrative.
So, where does one find the best dividend stocks? Carla Pasternak of High Yield Investing crunched the numbers and found the S&P 500 stocks that presented the "safest" dividend opportunities (via The Stock Advisors).
These were her criteria:
- 5% dividend yields (why settle for less?)
- Positive operating income growth (TTM) to ensure that dividend yields aren't inflated by falling share prices and as evidence that the companies can withstand market slumps. "It's not uncommon for 'sick' stocks to carry high yields. Based on a poor outlook, investors will dump the shares, boosting the yield," she writes.
- Free cash flow greater than dividend payouts, which means the company is paying for its dividends using its own cash -- using borrowed cash creates an unwanted risk.
- Lastly, she focused on the companies that have maintained and raised their dividend payouts "through thick and thin," which "shows dedication to paying dividends and also shows the company will maintain its payment should it hit a rough patch."
Interestingly, this left her with three telecoms companies, Windstream, CenturyLink, and Verizon.
"These are usually highly stable businesses, especially when compared to other industries. And it looks like these three telecoms should provide a high and stable yield for the coming years," she concludes.
Do you think Ms. Pasternak's picks are indeed "the three safest dividends in the S&P"? Begin your research into these three telecoms firms with the list below.
List sorted by dividend yield. (Click here to access free, interactive tools to analyze these ideas.)
3. Verizon Communications
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz.
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