Seven High-Yield Dividend Stocks For The Current Market (MO, AIV, T, VZ, DOW, DUK, SNH)

We have been running through many companies to determine which dividends appear safe.  Investors chase high dividend stocks with stable earnings when they are concerned about where to put their money.  We looked for stocks with dividend yields north of 4.5% (above 10-YR T-Note) as the cut-off and those who are expected to see earnings remain ample to maintain the numbers.  We had to eliminate everything tied to financial stocks in this climate as many dividends there are trimmed.  We also had to eliminate anything tied to high volatility and anything tied to auto’s.  We screened many others, but here are seven stocks with dividends that we think will either stay the same or grow in the coming year.

Altria Group, Inc. (NYSE: MO) is one of the old defensive stocks in a defensive sector: good old investor-friendly and cancer-causing tobacco.  The company recently split off Philip Morris International unit and is in the midst of a buyback and restructuring.  This company didn’t drop the dividend when the stock was butchered in the 1990’s, so now that its business is stable it’s a safe bet that it will try to keep its dividend no matter what.  With a $1.16 dividend (annualized) you have a 5.4% yield as of today and the $1.67 EPS estimate for 2008 and $1.84 EPS estimate for 2009 may actually leave more room for that dividend to increase rather than just stay the same.

Apartment Investment & Management Co. (NYSE: AIV) is one of th larger apartment-REIT’s out there, and it is diversified on property scales and by geography.  REIT’s also have to pay out 90% of their taxable income to shareholders in the form of dividends.  While apartments have not at all been immune from late-pays, the credit crunch, and the soft economy, the one area that sane people can’t eliminate is their roof.  Unless they want to be homeless, destitute, or back with mom and dad, the public has to live somewhere.  Unfortunately that has not translated into share appreciation as this has lost more than 1/3 of its value.  Its $2.40 dividend does seem sustainable with expected FFO (equivalent to EPS) of $3.25 in 2008 and $3.41 in 2009.  Because the price has come off this much, its current dividend yield is almost 6.8%.

AT& T (NYSE: T) and Verizon Communications (NYSE: VZ) are both believed to have safe and stable dividends.  Out of the two, Verizon is in the midst of a larger acquisition.  It is not expected to tie up all the cash that would have been applicable for the dividend, but this does make AT&T as the leader now that its recombination of BellSouth, SBC Communications and the old AT&T are all Ma-Bell once again.  AT&T has a $198 Billion market cap, its dividend is currently $1.60/annualized (4.60%), and forward income estimates of $3.01 EPS for 2008 and $3.38 for 2009 make the dividend more than sustainable for AT&T.

Dow Chemical Co. (NYSE: DOW) is perhaps one of the least exciting of industries, but because it has a monster track record and it has to keep running whether the economy is good or bad (with profits) this one made the list.  The company’s $1.68 dividend (annualized) generates an approximate yield of 4.6%.  The reason this has made the cut in the 4.5% yield threshold is because the stock is so far off of its recent highs.  At $35.10 (Thursday close), its shares are down from almost $48.00.  With over $3.00 in projected EPS in both 2008 and 2009, its $1.68 annualized dividend doesn’t look in jeopardy.  When you consider its recent flurry of price hike announcements and a perception that the pricing power will be able to stick, that seems even more likely today.

Duke Energy Corp. (NYSE: DUK) is one of the top ten electric utilities in the U.S. with a market cap north of $20 Billion.  Its main operations are in the Carolinas with smaller presence in Ohio, Indiana, and Kentucky; and it has some Latin American exposure as well.  The utility isn’t immune from current issue, and while its debt-to-equity is lower than many it has lower valuation multiples than many peers (part because of restructuring).  But one things that utilities have historically sought is to be steady dividend payers, and they hate lowering dividends.  Earnings estimates of $1.28 EPS in 2008 and $1.35 EPS in 2009 should allow this giant electric utility to keep on paying out a $0.92 annualized dividend even if it does have to eat some higher costs that can’t be entirely passed down to consumers.

Senior Housing Properties Trust (NYSE: SNH) has been one of the more reliable senior care facility operators and REIT compared to many peers of late.  This sector even fits within our "secular trend" sector as the elderly care facility sector has far more future demand than current and planned supply when you look at the managed elderly care facilities.  Its FFO (EPS equivalent) estimates of $1.71 for 2008 and $1.79 for 2009 should allow the company to maintain its $1.40 (annualized) dividend.  Because the company has made an acquisition and financed it with a dilutive secondary offering, we are not expecting the real earnings jump to come that would increase dividend-eligible income (90% for REIT’s) until 2010 or 2011.  But the income is there to maintain its dividend and the company would likely rather sell stock or take on light debt rather than to cut its dividend to holders. This one isn’t without any risk, but as it is in the middle of a longer-term range and as the company has been a stable operator of nursing homes where others haven’t done as well we feel the company can maintain its high dividend.   

Jon C. Ogg
June 27, 2008