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%. The first three stocks have outperformed the broader market, represented by the Russell 1000 Index, while the last two stocks listed below have underperformed. The Russell 1000 has provided a total return of 44.6% over the past 12 months. This market performance number and all statistics below are as of June 24, 2021.
- Forward dividend yield: 9.57%
- Payout ratio: 31.5%
- Price: $9.20
- Market cap: $12.9 billion
- 1-year total return: 56.1%
Annaly Capital Management is a diversified capital management company that invests in and finances residential and commercial assets. Its investments include agency mortgage-backed securities, residential and commercial real estate, and middle market lending. The company has about $100 billion in total assets.
- Forward dividend yield: 8.40%
- Payout ratio: 29.1%
- Price: $17.15
- Market cap: $9.0 billion
- 1-year total return: 47.0%
AGNC Investment is an internally-managed real estate investment trust (REIT) that primarily invests in agency residential mortgage-backed securities (RMBS) on a leveraged basis. It finances its holdings through collateralized borrowings structured as repurchase agreements (repos). A repo is a type of financial instrument in which a dealer sells government securities to investors, often on an overnight or 48-hour basis, and buys them back the next day at a slightly higher price. In these transactions, the dealer selling the repo is effectively borrowing and the other party is effectively lending,
- Forward Dividend Yield: 7.50%
- Payout Ratio: 56.1%
- Price: $10.66
- Market Cap: $5.0 billion
- 1-Year Total Return: 54.9%
New Residential Investment is a mortgage REIT. It 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, non-agency securities, residential loans, and other related investments.
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- Forward dividend yield: 6.84%
- Payout ratio: 69.7%
- Price: $8.77
- Market cap: $3.8 billion
- 1-year total return: 12.1%
Equitrans Midstream is a midstream energy services company. Its operations are focused on gas transmission and storage systems, gas gathering systems, and water services that support natural gas development and production. Its principal assets are located throughout the Appalachian Basin.
- Forward dividend yield: 6.06%
- Payout ratio: 62.6%
- Price: $11.22
- Market cap: $5.2 billion
- 1-year total return: 18.6%
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) announced 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 by the end of 2021.
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