What a sad state of affairs for bond investors when the 10-year U.S. Treasury yields barely 0.80%.
Park $10,000 in one of those and you’ll make just $80 a year! Enough to take your spouse out for a nice dinner, maybe. But not nearly enough to pay the bills in retirement.
No wonder so many investors are looking elsewhere for a decent yield. With stocks, they may even see those dividends grow over months and years!
But where can you find yield that’s safe, consistent and growing? Let’s start by looking at the 10 most popular stocks (yielding at least 1%) among Seeking Alpha readers.
The good news is that all 10 of these well-known companies have earned an “A” or “B” for Dividend Consistency from our NEW Dividend Grades.
However, in several cases, the Dividend Safety and Dividend Growth ratings are another story. Here are our findings:
By any measure, Seeking Alpha readers have chosen wisely with Microsoft (NASDAQ:MSFT). Of these 10, MSFT is the only stock beating the market, having climbed 36.85% year to date. And our dividend algorithm rates MSFT a B+ for Dividend Safety.
While other large-cap stocks have had to cut or suspend dividends this year, we’re not seeing much risk of that with Microsoft. Its software business was already second to none before COVID-19, and remote work solutions like Microsoft Teams are in higher demand than ever. According to our 13 Dividend Safety metrics, MSFT’s dividend is amply covered now and in the future.
MSFT also earns a B+ for Dividend Growth. Not only does the company already have 17 years of dividend growth under its belt, but its prospects for future growth are just as strong.
As for Dividend Yield, Microsoft is about in line with the rest of the tech sector, paying just over 1% at its current price.
AT&T (NYSE:T) is a hotly debated stock on Seeking Alpha. Where some see a business in trouble, others see great value in America’s original telecom giant. Especially when you can potentially lock in a dividend yield over 7%.
While AT&T stock earns an A for Dividend Yield, we’re seeing some drawbacks, too. The stock may pay substantially more than its peers, but other dividend factors are much less compelling.
AT&T’s payout ratio, for example, is more than twice Microsoft’s… while the company carries substantially more debt.
Similarly, AT&T rates just a C+ for Dividend Growth. Peers like Verizon (VZ) have far outpaced AT&T there. And looking at the estimates for revenues, profits and cash flow, we expect that to continue.
#3: Bank of America
Earnings season is upon us, and the bottom line for income investors is: Are the dividends safe, strong and growing?
Coming in just under 3%, Bank of America (NYSE:BAC) might not have the highest yield in the financial sector. But it does rate an A+ for its Dividend Growth.
As recently as 2015, BAC was paying just pennies in dividends. Since then, BAC’s dividend has enjoyed a five-year compound annual growth rate (CAGR) of 40.63%!
Unlike Wells Fargo (WFC), BAC has had no trouble paying dividends this year ‒ or any other year since the 2009 financial crisis. And based on the company’s fundamentals, including future estimates, BAC should be just as strong a dividend play going forward.
#4: Cisco Systems
Not every legacy tech company has been as strong a performer as Microsoft. But with a solid business and a cheap stock, Cisco Systems (NASDAQ:CSCO) is starting to get the attention of value investors. Now how is the dividend looking?
Frankly, CSCO’s Dividend Growth could be better; our dividend algorithm rates it a C- there. But at twice the payout of, say, Oracle (ORCL), Cisco earns an A+ for Dividend Yield!
While we are picking up some red flags on the balance sheet, like the company’s debt-to-earnings metrics, overall CSCO rates fairly well on Dividend Safety, too.
Speaking of legacy tech, Intel (NASDAQ:INTC) is closely followed ‒ and it’s an interesting case. Once the undisputed king of microchips, Intel now faces stiff competition from the Nvidias (NVDA) and Advanced Micro Devices (AMD) of the world. With its 2.5% yield, it certainly wins the dividend contest. But how’s it looking going forward?
Sometimes, income investors must choose between dividend safety and consistency… and dividend growth. That seems to be the case with INTC, which we’d rate much higher on the former metrics than on the latter.
Specifically, our dividend algorithm rates INTC a D+ for Dividend Growth. While INTC’s dividend has a respectable five-year CAGR of 6.96%, the company’s sales and profit prospects just don’t measure up to those of its peers. At some point, this tends to put a ceiling on the dividends as well.
#6: Exxon Mobil
What a year for the oil companies. It started off with a price war between Saudi Arabia and Russia, and then COVID-19 struck, plunging oil futures into negative territory by mid-April. Yes, demand had fallen so low that companies would have paid you to take the excess oil off their hands.
Schlumberger (SLB) soon became one of the high-profile companies to slash its dividend nearly to the bone. Exxon Mobil (NYSE:XOM) has managed to avoid that fate so far, but XOM stock isn’t faring much better than SLB.
As for Exxon’s dividends, it may not be out of the woods yet. While XOM looks okay on some of its other metrics, its Dividend Safety scores a D+.
The fact is, Exxon’s earnings turned negative in the second quarter, and they look likely to stay that way this quarter… resulting in a negative payout ratio. Other red flags include Exxon’s debt load. Energy companies are notorious for getting into debt when oil prices swing lower, and 2020 has certainly been no exception.
#7: International Business Machines
IBM (NYSE:IBM) is a great example of why dividend yield and even dividend history aren’t everything. It’s another legacy tech company with a mixed bag of dividend metrics.
At 5%, IBM’s yield is among the highest, and the stock has rebounded more strongly than that of some of its peers (although not nearly as much as Microsoft has).
However, IBM’s A+ for Dividend Yield contrasts sharply with its D for Dividend Safety.
For income investors looking to cut (or avoid) stocks that may end up slashing the dividend, give IBM some extra scrutiny. The company’s payout ratio is getting a little high, as is the debt load.
#8: Johnson & Johnson
While most of us associate the Johnson & Johnson (NYSE:JNJ) brand name with baby powder and shampoo, the company is also a major player in pharmaceuticals ‒ an area that’s attracting plenty of notice as companies scramble to develop, manufacture and deliver a COVID-19 vaccine by year-end.
As good as this has been for JNJ stock, what about its dividend? While the company has a good track record of consistent, strong yields, the same might not be true going forward.
Specifically, its Dividend Growth looks mediocre, even with its long history. Worse, JNJ’s Dividend Safety now rates a D.
Cash flow, for instance, could be a lot better. And astute dividend investors will note: This is the part of the balance sheet that the payout actually comes from. According to our scans, investors looking to Big Pharma for dividends could do much better.
#9: Verizon Communications
Another perennial favorite for income is Verizon (NYSE:VZ), which is also benefiting from a hot growth trend ‒ in this case, 5G wireless.
But as always, the bottom line is: Is the dividend safe? Is the yield strong and growing? Does the company have a history of prioritizing the dividend payout?
For Verizon, the answer is: Yes and no.
VZ earns top marks for Dividend Consistency. But the stock rates a B- on Dividend Growth, having raised the annual payout just a few pennies for several years running. We also look at forward projections, and Verizon’s growth prospects leave something to be desired. Dividend growth investors may find better telecom plays elsewhere.
#10: JPMorgan Chase
Warren Buffett may have trimmed his stake in JPM this quarter, but other dividend lovers may think twice before doing so.
With its 3.61% yield, JPM is about in line with its peers, and twice the S&P 500 average. What’s more, JPMorgan proves more than capable of growing its dividend. And with some of the largest cash reserves among the big banks, JPM stock also gets an A for its Dividend Safety.
All in all, our readers’ interest in these stocks is easy to understand. Many rate quite strongly for Dividend Safety, while others look like great Dividend Growth plays.
However, if you’re looking for Dividend Safety, Growth, Yield, AND Consistency…
Then you won’t want to miss our Top-Rated Dividend Stocks.
Some of the highest scorers are much lesser known than the 10 we just reviewed. But they did achieve excellent Quant Ratings… And, in many cases, top Dividend Grades as well!
We’re excited to bring you these NEW Dividend Grades, where we boil down dozens of metrics for revenues, earnings and dividends into 4 simple letter grades. Go here to learn more and get started.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.