At the end of February, I took a look at the increasing number of companies slashing their dividends.
While many investors believed those cuts were unexpected, I wrote that that there were two key signals that investors could have noticed ahead of time:
With these two criteria in mind, I ultimately advised investors against putting new money in stocks like Allied Capital (NYSE: ALD), China Mobile (NYSE: CHL), Luxottica (NYSE: LUX), and Boston Properties (NYSE: BXP).
The cuts keep coming
Although more than $64 billion in dividend payments was eliminated from the S&P 500 between September 2008 and March, not all dividend-paying companies are in danger of slashing their payouts.
In fact, although many companies' yields have risen due to their falling share price, that alone doesn't indicate that a dividend might be cut. The difference? Fundamentals.
A company with a stable revenue stream, a modest payout ratio, and that employs a manageable amount of leverage should be able to withstand difficult economic situations and continue rewarding dividend investors with sure gains.
The dividends to count on
To track down such stocks, I reversed my high free-cash-flow payout ratio screen from February and scanned for companies with a significant yield (more than 4%), a modest debt-to-capital ratio (less than 60%), and with a free-cash-flow payout ratio below 25% (which is a very good thing!).
Here are some of the companies I found:
Company
Market Cap
Dividend Yield
Debt-to-Capital Ratio
Free-Cash-Flow Payout Ratio
Allianz (NYSE: AZ)
$44.9 billion
4.9%
41%
2%
Innophos (Nasdaq: IPHS)
$345 million
4.4% Continued... |