Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. These companies usually are well established, with stable earnings and a long track record of distributing some of those earnings back to shareholders. The distributions are known as dividends and may be paid out in the form of cash or as additional stock. Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend. While dividend stocks are known for the regularity of their dividend payments, in difficult economic times, those dividends may be cut to preserve cash.
One useful measure for investors to gauge the sustainability of a company's dividend payments is the dividend payout ratio. The ratio is a measure of total dividends divided by net income, which tells investors how much of the company's net income is being returned to shareholders in the form of dividends versus how much the company is retaining to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), this indicates the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively greater risk of being cut.
Below, we look at the top five dividend stocks in the Russell 1000 by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. Dividend stocks, as measured by the S&P 500 Dividend Aristocrats Index, have underperformed the broader equity market. The index has provided a total return of 25.5% over the past year, below the S&P 500's total return of 32.8%. Only one of the dividend stocks below has outperformed the broader market. These market performance numbers and all statistics below are as of Nov. 22, 2021.
- Forward dividend yield: 10.49%
- Payout ratio: 47.6%
- Price: $8.39
- Market cap: $12.2 billion
- 1-year total return: 18.4%
Annaly Capital Management is a diversified capital management company that invests in and finances residential and commercial assets. Its investments include agency mortgage-backed securities (MBS), residential real estate, and middle market lending. The company has about $94 billion in total assets.
- Forward Dividend Yield: 9.02%
- Payout Ratio: 56.4%
- Price: $11.09
- Market Cap: $5.2 billion
- 1-Year Total Return: 39.3%
New Residential Investment is a mortgage REIT. It provides capital and services to the mortgage and financial services industries. The company invests in assets with stable, long-term cash flows. Its investment portfolio includes mortgage servicing-related assets, non-agency securities, residential loans, and other related investments. On Oct. 11, New Residential announced that it had entered into a definitive agreement to acquire Genesis Capital LLC, a business purpose lender focused on developers of new construction and related projects. Genesis is anticipated to originate roughly $2 billion of loans in 2021. The financial terms of the transaction, which is expected to close by the end of 2021, were not disclosed in the press release.
- Forward dividend yield: 9.01%
- Payout ratio: 56.0%
- Price: $15.98
- Market cap: $8.4 billion
- 1-year total return: 15.6%
AGNC Investment is an internally-managed mortgage real estate investment trust (REIT) that primarily invests in agency MBS on a leveraged basis. It finances its holdings through collateralized borrowings structured as repurchase agreements (repos). The company on Nov. 11 announced a monthly common stock dividend of $0.12 per share payable Dec. 9, 2021 for common stockholders of record as of Nov. 30, 2021.
- Forward dividend yield: 6.70%
- Payout ratio: 66.2%
- Price: $59.68
- Market cap: $46.1 billion
- 1-year total return: 11.6%
Southern Copper is an integrated copper producer. It produces copper, molybdenum, zinc, lead, coal, and silver. The company operates mining, smelting, and refining facilities in Peru and Mexico, and conducts exploration activities in Chile. On Oct. 21, Southern Copper announced a quarterly dividend of $1.00 per share of common stock. The dividend is payable on Nov. 23, 2021 to shareholders of record on Nov. 10, 2021. It also represents a $0.10 increase from the previous quarterly dividend declared on July 22, 2021.
- Forward dividend yield: 5.85%
- Payout ratio: 52.3%
- Price: $19.33
- Market cap: $5.4 billion
- 1-year total return: 22.1%
TFS Financial is a federally chartered stock holding company that conducts its principal activities through its wholly owned subsidiaries. It offers retail consumer banking services, including mortgage lending, deposit gathering, and other types of financial services. It had total consolidated assets of $14.1 billion as of Sept. 30, 2021.
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.