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Published: September 14, 2009
Two dozen S&P 500 members yield 6% or more,
about one in 20 companies listed on the market's benchmark.
Here are those companies:
| Company |
Ticker |
Yield |
| Frontier Communications |
FTR |
14.4% |
| Windstream Corp. |
WIN |
11.1% |
| Century Telecom |
CTL |
8.9% |
| Qwest Com |
Q |
8.6% |
| Integrys Energy |
TEG |
7.9% |
| Pepco Holdings |
POM |
7.8% |
| Altria Group |
MO |
7.5% |
| Reynolds American |
RAI |
7.4% |
| Nisource |
NI |
7.0% |
| Health Care REIT |
HCN |
6.6% |
| HCP |
HCP |
6.6% |
| Pinnacle West |
PNW |
6.5% |
| Company |
Ticker |
Yield |
| Progress Energy |
PGN |
6.4% |
| Duke Energy |
DUK |
6.2% |
| Pitney Bowes |
PBI |
6.2% |
| Cincinnati Financial |
CINF |
6.2% |
| AT&T |
T |
6.2% |
| Centerpoint Energy |
CNP |
6.1% |
| Verizon Com. |
VZ |
6.1% |
| Teco Energy |
TE |
6.1% |
| Ameren |
AEE |
6.0% |
| DTE Energy |
DTE |
6.0% |
| Eli Lilly & Co. |
LLY |
6.0% |
| Cons Edison |
ED |
6.0% |
But a high yield alone isn't enough, especially amid a year
that has been rough on dividends. Dividend cuts in the first
quarter outpaced dividend increases for the first time since
1955. The second time this happened? The second quarter of 2009.
While the overall economic situation still has room for
improvement, 233 companies still increased their dividends in
the second quarter. A great many companies simply let their
dividends be, neither adding to them nor subtracting from them.
The trick is to find the companies with the strength to keep
paying their shareholders. A few calculations will help us
determine which companies are least likely to cut their
dividends. Here are those calculations: What they are, how to do
them, and, most importantly, which companies they reveal:
|
Company |
Ticker |
Operating Cash Coverage Ratio |
|
Nisource |
NI |
6.2 |
|
Qwest Comm. |
Q |
6.0 |
|
Verizon Comm. |
VZ |
5.6 |
|
Ameren |
AEE |
4.4 |
|
AT&T |
T |
3.8 |
|
DTE Energy |
DTE |
3.8 |
|
Pitney Bowles |
PBI |
3.4 |
Cash Dividend Coverage Ratio
This metric a company's ability to meet its dividend obligations
from its "cash flow," which is the money it earns doing
business. To obtain the cash dividend coverage ratio, take the
company's "cash flow from operations" (found on the cash-flow
statement) and divide by the total dividends paid.
Any result below 1.0 is dangerous: It means the company is
paying more in dividends than it's earning from its primary
business. If the result is somewhere in the neighborhood of 2.0
you can consider the dividend "relatively safe." If the cash
dividend coverage ratio is above 3.0, it's fair to call that
dividend "very safe."
I'm not going to settle for "fairly safe" dividends. I
removed any company whose ratio was less than 3.0. Seven
companies made the cut: Free Cash Flow
"Free cash flow" is operating cash
flow less what the company allocates
to capital expenditures. Comparing
free cash flow to dividends paid
offers another look at dividend
safety.
Three of the seven companies on the above list -- DTE, AEE,
and NI -- have negative free cash flow. VZ paid more dividends
than its free cash. While any of these situations can be
corrected quickly, I'd wait until they are before I'd consider
them as an ultra-safe dividend.
That leaves three companies:
| Company |
Ticker |
Free Cash
Coverage Ratio |
| Qwest Comm. |
Q |
2.5 |
| Pitney Bowles |
PBI |
2.5 |
| AT&T |
T |
1.3 |
These three companies offer an
above-average dividend with best-in-class financial strength
behind it. Serious income investors would be wise to consider
any or all of these outstanding securities.
--
Anthony Haddad
Staff Writer
StreetAuthority.com |
