Income Investors: 5 Stocks with Big, Safe Yields
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Below I have done analysis on 5 stocks with high dividend yields. They, not only offer, high dividend yields but also have a sustainable dividend payment history. Investors should consider them for long term holdings.
Nokia Corporation (NYSE: NOK): After falling by almost 55% in 11 months, Nokia’s stock price rose by 17% in the past month. The stock was down 47% in 2011. Not surprisingly, Nokia has a high beta of 1.87 relative to the market. The company has a trailing dividend yield of 9.50%, with a payout ratio of over 200% over the past twelve months. On a forward price to earnings ratio basis, the stock is trading at 17 times compared to trailing ratio of 25 times. While the company posted a decline of 13% in its quarterly sales over the same period last year, Nokia’s long term earnings growth remains positive at 4.3%. Despite the decline in last year’s earnings, Nokia maintained its dividends, and there is no reason why Nokia will not continue to do so. This is backed by over $ 19 billion of equity. With its new product Lumia coming this year, the company might start gaining back its lost market share. This should help improve its operating margins of 2.5%, which are quite low as compared to the margins of its competitor, LM Ericsson Telephone Co (ERIC), at 12.5%. However, the company is faring much better than other competitors like Motorola Mobility Holdings (MMI), whose latest margins stand at only 0.5%.
AT&T Inc. (NYSE: T): AT&T is one of the only two companies in the telecom services industry offering a high forward dividend yield. It offers a yield of 5.8%. However, I believe AT&T has much better growth prospects than the other company, which will help maintain and grow its dividends going forward. In the past year, the company has outperformed the S&P500 by 5.2%, while paying out 87% of its earnings as dividends ($1.73). The company is trading at a forward price to earnings ratio of 12.5x, which makes it a good buy at this time. While investors may be worried about the revenue decline of 0.3% in the latest reported quarter, AT&T has hiked the prices of its data plans effective January 2012. This will help the company’s top line to improve. While Verizon (VZ) is another company operating in the sector with an optimistic outlook, it is trading at a forward price to earnings ratio of 15 times and offers a lower dividend yield. Sprint Nextel (S), another competitor, continues to report losses.
Vodafone (NASDAQ: VOD): At current price of $27.7, Vodafone is trading at a low forward price to earnings of only 9.9 times, and offers a forward dividend yield of 3.6%. Unlike AT&T, Vodafone has not only maintained its revenue stream, but the company’s revenues have also been increasing in the past years. Revenues have grown by 3% over the last reported year. However, Vodafone’s earnings declined by 8%, bringing its operating margins down to 14.5%. With a pickup in the industry, and expected partnerships in Asia and South America, Vodafone will not only perform financially well, its margins should also see an improvement. With a payout ratio of over 90%, these earnings are expected to result in better dividends for its shareholders. Other companies in the sector like Deutsche Telekom (DTEGY) already have lower margins than Vodafone, yet they are trading at higher valuation ratios.
Frontier Communications Company (NASDAQ: FTR): Frontier has seen a continuous decline in stock its stock price over the past year, and currently, it is down by 47%. However, the low prices mean that the stock is trading at an extremely high forward dividend yield of 15.2%. The company’s earnings have taken a hit recently with the bottom line declined by 40% last year. The company has also cut its dividends once in the past, which raises the question about the possibility of a future dividend cut. However, the company has yet to see a decline in its revenues which bodes well for Frontier Communications. The company also has a stable balance sheet with a current ratio 0.83, and positive operating and levered cash flows. However, all of these ratios have been obtained after Frontier paid $8.5 to Verizon to take over its wireless operations. This step tripled its customer base, and increased its debt levels, hence, the low current ratio. Even if Frontier Communications lost some of its new customers, in the long run, the expansion will pay positively for the company. Its peers like CenturyLink (CTL) are trading at high price to earnings ratio of almost 30 times, while companies like AT&T (T) offer good dividend yields, but probably lower growth prospects.
Linn Energy, LLC (NASDAQ: LINE): Linn Energy is down by 5.5% in the past twelve months and is currently trading at a forward price to earnings ratio of 16.4 times. Even at this stock price, the company is offering a forward dividend yield of 7.6%. Linn Energy has shown a turnaround in its financial performance, as the company reported earnings per share of $4.71 in the quarter ended September 2011, compared to only $0.02 in the same period last year. It also has an impressive history of consistent quarterly dividends and an earnings growth history of 9.3% over the past 5 years. Linn Energy reported operating margins of 93% in the past twelve months, while other companies in the sector continue to report much lower margins. Anadarko Petroleum Corporation (APC) margins are only 23%, while Forest Oil Corp. (FST) and Pioneer Natural Resources (PXD) both have margins near 42%. Linn seems set to continue its impressive performance going forward.
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