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 outperformed the broader equity market. The index has provided a total return of -1.5% over the past year, above the Russell 1000's total return of -9.1%. Only two of the stocks below—New Residential Investment Corp. (NRZ) and Lumen Technologies Inc. (LUMN)—have outperformed the market in that period. These market performance numbers and all statistics below are as of July 27, 2022.
- Forward Dividend Yield: 21.47%
- Forward Dividend Rate: 3.60
- Payout ratio: 23.94%
- Price: $16.34
- Market cap: $7.79 billion
- 1-year total return: -30.53%
Invesco is an investment management firm that serves both retail and institutional markets worldwide. Its asset classes include equity, fixed income, money market, and others. It also provides mutual funds, exchange-traded funds (ETFs), indexing, individual savings accounts, and various other products. For the three months ended March 31, Invesco's operating income grow by 9.7% year-over-year (YOY) as operating revenue declined by 1.8%. The company reports earnings for Q2 FY 2022 on July 27.
- Forward Dividend Yield: 13.73%
- Forward Dividend Rate: 0.88
- Payout ratio: 50.87%
- Price: $6.45
- Market cap: $10.05 billion
- 1-year total return: -23.87%
Annaly Capital Management is a diversified capital management company that operates as a real estate investment trust (REIT). It has investments across the mortgage finance industry. Its investment portfolio includes agency mortgage-backed securities (MBS), residential real estate, and mortgage servicing rights.
- Forward Dividend Yield: 10.24%
- Forward Dividend Rate: 5
- Payout ratio: 81.45%
- Price: $48.00
- Market cap: $37.16 billion
- 1-year total return: -25.07%
Southern Copper is a mining company that produces copper, molybdenum, zinc, and precious metals. The company has mining operations in Peru and Mexico, including mining properties, smelting and refining plants, and railroad and port facilities.
- Forward Dividend Yield: 9.76%
- Forward Dividend Rate: 1
- Payout Ratio: 42.60%
- Price: $10.36
- Market Cap: $4.76 billion
- 1-Year Total Return: 8.24%
New Residential Investment is a REIT that 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, real estate securities, residential mortgage loans, and other related investments. New Residential announced on June 17 that it had taken steps to transition from an externally managed to an internally managed REIT. As part of the plan, New Residential said it would terminate its management agreement and has agreed to pay manager FIG LLC $400 million. The company predicts that the steps will result in cost savings of $60 million to $65 million per year. New Residential also said it planned to change its name to Rithm Capital Corp. (RITM) on or about Aug. 1.
- Forward Dividend Yield: 9.48%
- Forward Dividend Rate: 1
- Payout Ratio: 48.54%
- Price: $10.76
- Market Cap: $11.069 billion
- 1-Year Total Return: -15.10%
Lumen Technologies is a technology and communications company that provides services to consumers and businesses worldwide. It provides an integrated platform that brings together network assets, cloud connectivity, security solutions, and voice and collaboration tools to help businesses use their data and adopt next-generation technologies. The company announced on July 12 that it would expand its Lumen Edge Computing Solutions business into Europe. Lumen Edge Computing Solutions already meets roughly 70% of enterprise demand within 5 milliseconds of latency in the U.K., France, Germany, Belgium, and the Netherlands.
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