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 theS&P 500 Dividend Aristocrats Index, have outperformed the broader equity market. The index has provided a total return of -0.3% over the past year, above the Russell 1000’s total return of -7.1%. Only two of the stocks below—New Residential Investment Corp. (NRZ) and Starwood Property Trust Inc. (STWD)—have outperformed the market in that period. These market performance numbers and all statistics below are as of May 24, 2022.
Annaly Capital Management Inc. (NLY)
Forward dividend yield: 13.64%Payout ratio: 51.6%Price: $6.45Market cap: $9.4 billion1-year total return: -22.4%
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.
New Residential Investment Corp. (NRZ)
Forward Dividend Yield: 9.33%Payout Ratio: 41.3%Price: $10.72Market Cap: $5.0 billion1-Year Total Return: 13.0%
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.
OneMain Holdings Inc. (OMF)
Forward dividend yield: 9.23%Payout ratio: 72.1%Price: $41.15Market cap: $5.2 billion1-year total return: -15.8%
OneMain Holdings is a financial services holding company. Its offerings include personal loan products, credit card products, optional credit insurance, and other financial products. It also pursues strategic acquisitions, including loan portfolios or other types of financial assets.
Lumen Technologies Inc. (LUMN)
Forward Dividend Yield: 8.42%Payout Ratio: 49.3%Price: $11.88Market Cap: $12.3 billion1-Year Total Return: -10.3%
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 utilize their data and adopt next-generation technologies. The company announced in late March the appointment of Chris Stansbury to the role of chief financial officer (CFO). Stansbury most recently served as senior vice president and CFO for Arrow Electronics Inc., where he was responsible for leading the company’s global finance organization.
Starwood Property Trust Inc. (STWD)
Forward dividend yield: 8.31%Payout ratio: 85.2%Price: $23.10Market cap: $7.1 billion1-year total return: -0.5%
Starwood Property Trust is a diversified finance company primarily focused on the real estate and infrastructure sectors. The company’s investment portfolio includes commercial mortgage loans, commercial MBS, and other commercial real estate-related debt. It also invests in residential mortgage loans and residential MBS.
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