The economic turmoil and subsequent stock market volatility does not mean there has been a lack of investing opportunities. The decline in share prices has resulted in relatively high dividend payouts compared to share prices. Many traders have moved over to the investor camp looking for longer-term horizons. In good times more risk can be taken. But for now, let's look at a couple of companies paying holders a healthy dividend.

Bristol-Myers Squibb (NYSE: BMY) is paying its shareholders a dividend yielding 4.8%, or a $1.28 dividend from an expected $1.84 to $1.94 EPS for 2010. The payout ratio is around 67%, so the company has decided its best use of the earnings should be decided by the holders.

IN PICTURES: World's Greatest Investors

Low Payouts

A couple of companies paying out low percentages of earnings but still yielding high are keeping cash for growth. Aircastle (NYSE: AYR) offers a 4.8% yield and 34% payout, and Earthlink (Nasdaq: ELNK) offers a 7.5% forward yield and 22% payout ratio. The lower payout ratio could mean the company is investing back into operations; also, the earnings support the dividend. You wouldn't want to buy a dividend-paying stock only to discover it gets cut due to lack of earnings.

ConocoPhillips (NYSE: COP) has a decent dividend yield at 4.2% and retains 66% of earnings to grow the business. There is plenty of room in earnings before a dividend cut would occur. In huge companies, the dividend is sometimes better spent making the owners happy, or maybe the earnings couldn't be turned into enough profit to adequately pay back shareholders. (Learn more about these ratios and others for evaluating stocks in our Investment Valuation Ratio Tutorial.)

Higher Payouts

A higher payout isn't always a bad sign, especially in larger, well-established companies. For example, Bristol-Myers Squibb has a 67% payout. Southern Copper (Nasdaq: SCCO) pays out 72%, which is in the higher range, and yields 5% for investors. It has missed estimates in the last two quarters, and third quarter numbers are due out October 27 with analysts expecting 45 cents per share. Even though Southern Copper missed estimates, earnings were well above last year. In Q1, EPS was 45 cents versus 9 cents a year earlier. Q2 ending June 30 saw EPS of 37 cents versus 21 cents in the comparable period a year earlier.

Garmin (Nasdaq: GRMN) has a decent dividend yielding 5.5% going into the future, and the company pays out 68% of earnings. Next quarter, EPS estimates sit around 76 cents, which would be 25.5% below 2009 comparable period EPS of $1.02.

Dividends Must Be Sustainable

Dividend yields should not be the only metric you use to pick a stock. The dividend needs to be sustainable, and when it gets deposited in your account, you need to think about what you should do with it. Maybe the company can do a better job growing the earnings than you could, especially in this market.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  3. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  4. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  5. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
  6. Mutual Funds & ETFs

    Top 5 Bear Market Mutual Funds

    Discover five bear market mutual funds that investors can turn to for generating maximum capital appreciation during a bear market.
  7. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  8. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  9. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  10. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!