Dividend stocks are companies that regularly distribute a portion of their profits to a category of shareholders. These companies tend to be well established, with stable earnings and a long track record of returning some of that earnings to shareholders. The distributions are known as dividends and can be paid in the form of cash or as additional shares. Most dividends are paid on a quarterly basis, but some are paid monthly, annually or even once in the form of a special dividend. While dividend stocks are known for the regularity of their dividend payments, those dividends can be reduced in tough economic times to conserve cash.
A useful metric for investors to measure 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 returned to shareholders in the form of dividends versus how much the company keeps to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), it indicates that the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively higher risk of being cut.
Below we look at the top five dividend stocks in the Russell 1000 based on future dividend yields, excluding companies with payout ratios that are either negative or over 100%. Only one of the stocks listed below, TFS Financial Corp. (TFSL), outperformed the broader market, represented by the Russell 1000 Index. The Russell 1000 has delivered a total return of 39.4% over the past 12 months. This market performance number and all statistics below are as of July 27, 2021.
- Term dividend yield: 10.39%
- Payout ratio: 31.5%
- Price: $8.47
- Market Capitalization: $11.9 Billion
- Total return 1 year: 29.5%
Annaly Capital Management is a diversified capital management company that invests in and finances residential and commercial assets. Investments include mortgage-backed brokerage securities, residential and commercial real estate, and mid-market lending. The company has approximately $93 billion in total assets.
- Term dividend yield: 8.90%
- Payout ratio: 33.2%
- Price: $16.18
- Market Cap: $8.5 Billion
- Total return 1 year: 29.4%
AGNC Investment is an internally managed real estate investment trust (REIT) that invests primarily with leverage in residential mortgage-backed securities (RMBS). It finances its holdings through collateralised loans structured as repos (repos).
- Forward Dividend Yield: 8.47%
- Payout ratio: 56.1%
- Price: $9.44
- Market capitalization: $4.4 billion
- 1 year total return: 30.9%
New Residential Investment is a mortgage REIT. It provides capital and services to the mortgage and financial services industry. The company invests in assets with stable long-term cash flows. Its investment portfolio includes assets related to mortgages, non-agency, home loans and other related investments.
- Term dividend yield: 6.18%
- Payout ratio: 62.6%
- Price: $11.00
- Market capitalization: $5.1 billion
- Total return 1 year: 15.7%
New York Community Bancorp is a holding company with multiple banking subsidiaries, including Queens County Savings Bank, Roosevelt Savings Bank, Atlantic Bank, and others. Through these subsidiaries, New York Community Bancorp offers a full range of banking products and services to businesses and consumers. The company serves customers in the New York City metropolitan area, as well as New Jersey, Florida, Ohio and Arizona. On April 26, New York Community Bancorp and Flagstar Bancorp Inc. (FBC) that they had entered into a definitive agreement to do an all-stock merger. The implied total transaction value of the deal is $2.6 billion based on closing prices on April 23, 2021. The transaction is expected to close at the end of 2021.
- Term dividend yield: 5.76%
- Payout ratio: 63.8%
- Price: $19.45
- Market capitalization: $5.5 billion
- Total return 1 year: 49.6%
TFS Financial is a federally chartered equity holding company that conducts its principal activities through its wholly owned subsidiaries. It provides private consumer banking services, including mortgages, deposit collection, and other types of financial services. It had total consolidated assets of $14.6 billion as of September 30, 2020.
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