5 stocks with dividend yields above 6%
The average dividend yield of the S&P 500 index is currently below two percent. Finding stocks in the US market that pay three times that value is not so easy. A high yield is always the result of a combination of two numbers: the size of the dividend and the share price. When the dividend grows, that is good news. When the price falls, it is often a warning. In this analysis, we have uncovered where the dividend is sustainable in the following 5 stocks and where, on the contrary, it is a growing risk.
Key points
The average yield of the S&P 500 index holds around 1.8%, selected stocks offer up to four times that.
In three of the five companies, the yield rose mainly due to a decline in the share price, not due to growth in payouts.
Two companies this year did not raise their dividend for the first time in years and are holding it at the current level.
The key indicator for investors is not the yield level, but the coverage of payouts by free cash flow.
The market usually does not pay a high yield for free. Either it is a company in a cyclical sector where earnings are unstable, or a company with a temporarily disrupted business model, or a payout structure that reads differently from historical data than from future ones.
In today's selection, we have included five US stocks that pay 6% or more. They are an insurer, an iron ore miner, a logistics giant, an alternative asset manager, and a food company. So they have virtually nothing in common sector-wise.
Why the yield for the same stock differs by source
Dividend yield is not a uniquely defined number and various websites calculate it differently. Trailing yield is based on the sum of all dividends actually paid over the last twelve months. Forward yield, on the other hand, takes the last declared quarterly payout, multiplies it by four, and divides by the current price.
For companies with stable payouts, both methods give practically the same result. But as soon as a company pays a special dividend, cuts its payout, or newly raises it, the two numbers diverge significantly. We will see exactly this problem right at the first stock, where values range from 0.19% to 6.6% depending on the chosen methodology.