Dividends are not future guarantees. Although companies try very hard to avoid cutting their dividends because of the bad publicity, a history of paying a dividend does not mean the company will necessarily continue to do so.
As an investor going into a dividend stock investment, it’s vital to perform due diligence first if you want to rely on the dividend income.
Operating cash is often the company’s source for funding dividend payments – at the very least, it’s the most sustainable source.
This implies that dividends are only as sustainable as the company’s operating cash flows, so analysis of cash flows is important.
To illustrate this concept, we ran a screen on stocks paying dividend yields above 3% with sustainable payout ratios below 50%. We screened these stocks for those with at least three times the TTM operating cash flow per share compared to the dividend per share over the same time period.
These companies maintained a sizeable cushion between their dividend payments and the operating cash they generated. Do you think they’ll continue this sustainable trend?
Use this list as a starting point for your own analysis. List sorted by dividend yield.
1. Navios Maritime Holdings Inc. (NM, Earnings, Analysts, Financials): Operates as a seaborne shipping and logistics company in Greece. Market cap of $374.22M. Dividend yield at 6.52%, payout ratio at 30.88%. Total operating cash flow per share at $1.79 vs. TTM dividends per share at $0.24.
2. Universal Corp. (UVV, Earnings, Analysts, Financials): Operates as a leaf tobacco merchant and processor worldwide. Market cap of $1.0B. Dividend yield at 4.45%, payout ratio at 33.93%. Total operating cash flow per share at $6.26 vs. TTM dividends per share at $1.90.
3. BT Group plc (BT, Earnings, Analysts, Financials): Provides communications solutions and services worldwide. Market cap of $24.13B. Dividend yield at 3.81%, payout ratio at 34.75%. Total operating cash flow per share at $8.62 vs. TTM dividends per share at $1.22.
4. Sasol Ltd. (SSL, Earnings, Analysts, Financials): Operates as an integrated energy and chemicals company. Market cap of $30.94B. Dividend yield at 3.53%, payout ratio at 33.41%. Total operating cash flow per share at $5.35 vs. TTM dividends per share at $1.65.
(By Alexander Crawford)
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Analyze These Ideas: Getting Started
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Navios Maritime Holdings Inc. (NM, Chart, Download SEC Filings)
- Universal Corp. (UVV, Chart, Download SEC Filings)
- BT Group plc (BT, Chart, Download SEC Filings)
- Sasol Ltd. (SSL, Chart, Download SEC Filings)
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