5 Dividend Monsters for Strong Income
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We have identified five monster dividend stocks that yield at least 9%. While a yield this high sounds too good to be true, all of the companies’ payout ratios – the ratio of earnings paid out in the form of dividends – are less than 80%.
The first company we found is Pitney Bowes, Inc. (NYSE: PBI). The company recently lowered 2012 guidance, with expectations that revenue would be down 4% and EPS would be in the range of $1.95-$2.15, with the consensus at $2.02 – which would be down 14% from last year. The company currently pays a dividend that yields 10.4%.
On hardware business weakness (accounting for around 32% of Pitney’s revenues) their share price was beaten down over 22% year to date, which has pushed the company’s dividend yield to over 10%. The company trades at a trailing P/E of 4 and a forward P/E of 8. Pitney pays a dividend over four times that of its peers and owns a large portion of the market, while generating generally consistent revenues due to its link to postage. Its payout ratio is 43% and for the first half of 2012, the company had $370 million in cash flow from operations, versus its first half 2012 dividend payments of $153 million.
Pitney is still one of the four dividend stocks that hedge funds love, including Philippe Laffont of Coatue Management, who took a new position in the company during the second quarter.
Hatteras Financial Corp. (NYSE: HTS), a REIT operating primarily in the single-family residential sector, pays a 10.8% dividend yield that represents a payout ratio of 85%. 2Q results put net interest income at $83 million, 8% lower than estimates. Net interest spread was also 9 basis points lower, coming in at 149 bps. As well, the asset yield declined by 18 bps, 13 bps more than expected. Nonetheless, the company is still up 13% year to date.
REITs should prove to be attractive investments in the future, especially since the announcement of QE3. Bill Miller of Legg Mason Capital, as well as Jim Simons and Steven Cohen, are all top names owning Hatteras.
France Telecom SA (NYSE: FTE), the European telecommunications and mobile company, pays a dividend that yields 13.6% and represents a 77% payout. The recent competition among mobile retailers in France has put pressure on France Telecom, which has seen its stock driven down 17% year to date. Its 2Q results put revenues down 2.1%, but France Telecom’s mobile retail market share has begun to stabilize around 40%.
Much of the pressure from competition may well be priced into the stock, and we believe the company may be even more undervalued than it was back in January of this year. In January, the company was trading at a forward P/E of 8.4 and a P/B of 1.1; France Telecom currently trades at a forward P/E of 7.8 and a P/B of 0.95.
Of the five big time dividend stocks in this article, France Telecom hosts some of the biggest names. Arrowstreet Capital took a new position in 2Q, while Jim Simons upped his by 51%, D.E. Shaw increased his 812%, Ken Griffin took a new position, and Steven Cohen upped his position 71%.
Chimera Investment Corporation (NYSE: CIM) is an investor in residential mortgage backed securities that pays a 13.2% dividend yield with a payout ratio of 72%. The company reported a 2% decline its latest quarter, and came in on a per share basis at $2.76 versus estimates of $2.89. This has erased gains earlier in the year, as the decline came as a surprise, especially since non-Agency MBS prices appeared to improve over the time period.
Bill Miller and AQR Capital both held positions in Chimera during the second quarter, and Ken Griffin of Citadel Investment Group was a top holder among the firms we follow.
Companhia Energetica Minas Gerais (NYSE: CIG) is a Brazilian electric power generating company, and when compared to key competitors such as OGE Energy and Pinnacle West Capital, trades at a discount, with a P/E of 9, while OGE trades at 16x and Pinnacle at 15x. As well, Companhia trades at a forward P/E of 5. For 2Q, the company beat EPS estimates of $0.45 by posting actual EPS of $0.47.
Moreover, the company reported revenue up over 15% and EPS up over 6% from the same quarter a year ago. Companhia’s payout ratio is 75%, but the company did generate cash from operations in 2Q of $403 million. The total dividend payout for the company per quarter is $307 million. The yield on the company’s dividend is 13.4%.
Arrowstreet Capital is the top name in Companhia, as measured by share ownership of the firms we track, owning 3.5 million shares. Jim Simons took a new position in the company during the second quarter and AQR Capital upped its stake by 66%.
While the dividend yield on these stocks is very attractive, investors should use caution when considering investments in ultra high yielding dividend stocks, as companies will usually choose to suspend dividends if cash flow becomes strained.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this stock. The Motley Fool owns shares of France Telecom (ADR). Motley Fool newsletter services recommend France Telecom (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.