Two Mega-Cap Stocks With 5% Dividend Yields: How to Choose
We are fast becoming dividend nation. Morgan Stanley Smith Barney recently pointed out that assets in ETFs with a dividend-based investing theme has jumped from barely $5 billion in 2008 to more than $40 billion today.
Nothing wrong with that in principle. But newbies chasing the highest yielders could be missing out on finer points of dividend investing.
But it’s not exactly easy to make those payouts.
Yep, its current dividend payout ratio is 231% of its net income. High payout ratios aren’t uncommon in telecoms -- Verizon’s (VZ) is currently 171% -- but the current level is a 10-year high. Cash-flow has been strong enough to keep the per-share dividend/cash ratio right around 70%. Still, like all telecoms AT&T is stuck in a never ending cap-ex cycle, which has averaged around $20 billion annually since 2007, and management recently announced plans to increase that to $22 billion in 2013.
Granted, getting paid 5.3% is pretty good compensation. But dividend hikes have barely kept pace with inflation.
Carla Fried, a contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine.