Sure Dividend

Updated on October 8th, 2020 by Bob Ciura

Spreadsheet data updated daily

When a person retires, they no longer receive a paycheck from working. While traditional sources of retirement income such as Social Security help investors make up the gap, many could still face an income shortfall in retirement.

This is where high-yield dividend stocks can be of assistance. We have compiled a full downloadable list of stocks yielding above 5%.

You can download your full list of all 200+ securities with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

 

This article examines securities in the Sure Analysis Research Database with:

• Yields of 5% or greater
• Dividend Risk Scores of C or better

Note: We update this article at the beginning of each month so be sure to bookmark this page for next month.

With yields between 5% and 10%, these securities all offer high dividends (or distributions). And with Dividend Risk Scores of C or better, they don’t suffer from the usual excessive riskiness of truly high yielding securities. Furthermore, these stocks are large-caps with leadership positions in their respective industries.

In other words, these are relatively safe, high yield income stocks for you to consider adding to your retirement or pre-retirement portfolio.

Table Of Contents

All stocks in this list have dividend yields above 5%, making them highly appealing in an environment of falling interest rates. Stocks were further screened based on a qualitative assessment of business model strength, competitive advantages, and debt levels. Lastly, a maximum of three stocks were allowed for any market sector to ensure diversification.

The 10 highest-yielding securities with Dividend Risk scores of C or better are listed in order by dividend yield, from lowest to highest.

• People’s United Financial (PBCT)
• Navient Corporation (NAVI)
• Universal Corporation (UVV)
• AT&T Inc. (T)
• TransAlta Renewables (TRSWF)
• British American Tobacco (BTI)
• Altria Group (MO)
• Enterprise Products Partners (EPD)
• Magellan Midstream Partners (MMP)
• Energy Transfer LP (ET)

10. People’s United Financial (PBCT)

• Dividend Yield: 6.6%

People’s United Financial is a diversified financial services company that provides commercial and retail banking and wealth management services via its network of over 400 branches in the Northeast. It has total assets of $59 billion and trades with a market capitalization of approximately $4.5 billion.

The company has more than doubled its total assets during the last decade thanks to organic growth, geographic expansion, and a series of acquisitions. In the last six years, it has grown its loans and its deposits at a 9% average annual rate.

Source: Investor Presentation

In 2019, People’s United Financial completed the acquisition of United Financial, which will enhance the presence of the company in central Connecticut and western Massachusetts.

Just like all the other banks, People’s United Financial is now facing a strong headwind, namely the outbreak of the coronavirus. As a result, all the banks will increase their provisions for loan losses.

In late July, People’s United Financial reported (7/23/20) financial results for the second quarter of fiscal 2020. The net interest margin of the company slipped from 3.12% to 3.05% sequentially but the amount of loans grew 3% and thus net interest income grew 2% sequentially. On the other hand, non-interest income slumped -28%, from $123.8 million to $89.6 million, due to the decreased customer activity caused by the pandemic and the numerous fee waivers related to the pandemic.

As a result, operating earnings-per-share fell -27% sequentially, from $0.33 to $0.24. It is also remarkable that the provision for credit losses increased from $8.5 million to $80.8 million due to the pandemic.

Despite the difficult near-term environment, we still expect 4% earnings-per-share growth over the next five years. Growth will be fueled primarily by the recent acquisitions and our expectations for somewhat higher interest rates in the long run, which will enhance People’s net interest margin. With a dividend payout ratio less than 70% expected for 2020, we view the dividend as highly secure.

9. Navient Corporation (NAVI)

• Dividend Yield: 7.1%

Navient Corporation is a student loan management and business processing company that sells its services to clients from industries such as education & healthcare, and also provides business processing solutions to government clients at federal, state, and local levels. Navient operates through the Federal Education Loans segment, the Consumer Lending segment, and the Business Processing segment.

Source: Investor Presentation

Navient reported its second-quarter earnings results on July 22nd. The company generated revenues of $300 million during the quarter, which represents an increase of 1.4% compared to the previous year’s quarter. Navient’s revenues easily beat the analyst consensus by $28 million, as analysts had forecasted a meaningful decline. The company also managed to beat the analyst consensus for its earnings-per-share, as Navient earned $0.92 on a per-share basis, which was $0.50 above the consensus estimate.

Navient management announced new guidance for 2020, now forecasting earnings-per-share in a range of $2.95 to $3.00, which would be a meaningful increase versus 2019. The current coronavirus crisis is thus not impacting the company to a large degree.

Navient’s loans business, in both the Federal Education Loans segment and in the Consumer Lending segment, is under pressure. Declining loan balances are a headwind for the company’s profits, although rising interest margins have a positive impact on Navient’s interest margins. Navient forecasts that the loan business will remain a huge source of cash flows over the coming years.

Navient will use some of its cash flows to retire debt –the company has paid down unsecured debt totaling more than $2 billion during 2019. Management plans to return a significant portion of that cash to the company’s shareholders via dividends and share repurchases. Buybacks will help boost future EPS growth.

Navient has paid a quarterly dividend of $0.16 per share over the last few years. The annual payout of $0.64 is equal to roughly one-fifth of the company’s net profits, which results in a quite low dividend payout ratio. Investors do not have much visibility on Navient’s performance during future recessions, though, as shares were not publicly traded during the last financial crisis. It is possible that Navient would be under pressure during future downturns, which is why we do not rate the dividend as extremely safe.

That said, the current dividend payout is covered by earnings, and Navient’s fundamentals have held up so far in 2020. The high yield above 7% is attractive for income investors willing to accept a higher level of company risk.

8. Universal Corporation (UVV)

• Dividend Yield: 7.1%

Universal Corporation is the world’s largest leaf tobacco exporter and importer. The company is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars.

Source: Investor Presentation

Universal recently increased its dividend for the 50th consecutive year, meaning it now qualifies for the exclusive list of Dividend Kings.

Universal Corporation reported its fiscal 2021 first-quarter results, in which revenue of $316 million increased 6% year-over-year. Revenue growth was due to higher volumes, offset partly by lower sales and leaf prices as well as less favorable mix. Operating income grew by 13% for the quarter.

In fiscal 2020, profits were down due to the impact of lower sales, coupled with some margin pressures on Universal’s operations. However, the company generated adjusted earnings-per-share of $3.49 during fiscal 2020, which allowed it to raise its dividend for the 50th consecutive year.

Profits generated in fiscal 2020 sufficiently covered the forward dividend payout of $3.08 per share. Investors will need to continue monitoring the company’s results to make sure its financial results do not deteriorate further, but for the time being the dividend appears covered.

7. AT&T Inc. (T)

• Dividend Yield: 7.2%

AT&T is the largest communications company in the world, operating in four distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses), WarnerMedia (including Turner, HBO and Warner Bros.), AT&T Latin America (offering pay-TV and wireless service to 11 countries) and Xandr (providing advertising). The company generates $180+ billion in annual revenue.

AT&T reported second-quarter 2020 financial results on July 23rd. For the quarter, the company generated $40.95 billion in revenue, down 9% year-over-year. The coronavirus pandemic led to declines across the business, including lower content and advertising revenue for WarnerMedia, as well as lower domestic video and legacy wireless revenue. On an adjusted basis, earnings-per-share declined 6.7% to $0.83.

Still, AT&T generated $7.6 billion of free cash flow, which was used to pay down debt, return cash to shareholders, and invest in future growth. AT&T’s net debt-to-EBITDA ratio was ~2.6x at the end of the quarter.

Source: Investor Presentation

AT&T is a colossal business, easily generating profits of $20+ billion annually, but it is not a fast grower. From 2007 through 2019 AT&T grew earnings-per-share by 2.2% per year. While the company is picking up growth opportunities, notably in its recent acquisitions of DirecTV and Time Warner, we are cognizant of both the premiums paid and the fact that the company’s legacy businesses are steady or declining.

Two individual growth catalysts for AT&T are 5G rollout and its recently-launched HBO Max service. AT&T continues to expand 5G to more cities around the country. AT&T’s 5G service now covers more than 120 million people.

On May 27th, AT&T launched streaming platform HBO Max and generated 90,000 mobile downloads on its first day. HBO Max is priced at $15 per month and offers subscribers approximately 10,000 hours of programming.

AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt. With a long history of increasing dividends each year (AT&T is a Dividend Aristocrat) we expect the company’s dividend payout to remain secure, even in a recession.

6. TransAlta Renewables (TRSWF)

• Dividend Yield: 7.2%

TransAlta Renewables trades on the Toronto Stock Exchange (under the ticker RNW) and on the over the counter market (under the ticker TRSWF). Its history in renewable power generation goes back more than 100 years. In 2013, the company was spun off from TransAlta, who remains a major shareholder in the alternative power generation company.

The company has maintained or increased its dividend every year since 2014, by an average of 4% growth per year. As of June 30th, TransAlta Renewables owned 13 hydro facilities, 23 wind farms, 7 natural gas plants, and 1 solar asset. In total, the company owned directly or through economic interests, an aggregate of over 2,500 megawatts of gross generating capacity in operation.

Source: Investor Presentation

TransAlta earns a place on the list of top monthly dividend stocks, not just because of its high yield, but also because of its future growth potential. TransAlta stands on the forefront of a major growth theme–renewable energy.

2019 was another year of growth for the company. Full year Comparable EBITDA increased $8 million, to $438 million for 2019, mainly due to the inclusion of a full year of results from the Lakeswind wind farm and the Mass Solar facility. Future growth is likely due to the addition of new projects. For example, TransAlta announced that the Big Level and the Antrim wind farms began commercial operation in December 2019.

The company also has performed well to start 2020, especially given the difficult business conditions due to coronavirus. In the 2020 second quarter, comparable EBITDA of $115 million increased 4% year-over-year. Adjusted funds from operation increased 13%, while cash available for distribution increased 14% on a per-share basis compared with the same quarter last year. Renewable energy production increased 27% for the quarter, in terms of gigawatt hours.

TransAlta is also appealing for income investors as it is a monthly dividend stock with a monthly dividend of $0.0783 per share in Canadian dollars. In terms of U.S. dollars, the annualized dividend payout of $0.72 per share represents a strong yield above 7%. TransAlta is therefore an appealing mix of dividend yield and future growth potential. The dividend appears secure, as the company has a strong financial position.

5. British American Tobacco (BTI)

• Dividend Yield: 7.3%

British American Tobacco is among world’s largest tobacco companies, with a market capitalization of $92 billion. British American Tobacco owns many tobacco brands, including Kool, Benson & Hedges, Dunhill, Kent, and Lucky Strike. The company also acquired the remaining 48% stake in Reynolds American Tobacco that it did not already own in July of 2017.

In fiscal 2019, British American Tobacco generated adjusted earnings-per-share of US$4.38, up 9% from the previous year.

British American Tobacco announced second-quarter results on July 31st. Through the first half of the year, revenue increased 0.8%, while operating profit rose 16.4% from the same quarter a year ago. In addition, a lower tax rate and margin expansion led to 23% growth in diluted earnings-per-share.

The company’s future growth will come primarily from its newer non-combustible product lines, such as Vuse and Vype. These products are seeing strong uptake across multiple markets.

Source: Investor Presentation

Cost savings following the integration of Reynolds American will also be a driver for British American Tobacco’s earnings. Other factors include ongoing organic growth due to rising cigarette prices and the rise of vaping products, and declining interest expenses as long as British American Tobacco is able to lower its debt load due to ongoing debt pay downs.

Interest rates are at all-time lows, especially in Europe, which should also help drive further interest savings as well. We believe that the company will grow its earnings-per-share at a low-single-digit pace going forward.

British American Tobacco has kept its dividend payout ratio in a range of 55%-75% throughout the last decade. Compared to other tobacco stocks, this is not a high payout ratio. Other players, such as Altria, pay out ~80% of their profits in the form of dividends. We believe that the dividend is safe for the foreseeable future.

4. Altria Group Inc. (MO)

• Dividend Yield: 8.5%

Altria Group is a tobacco products giant. Its core tobacco business holds the flagship Marlboro cigarette brand. Altria also has non-smokable brands Skoal and Copenhagen chewing tobacco, Ste. Michelle wine, and owns a 10% investment stake in global beer giant Anheuser Busch Inbev (BUD).

Related: The Best Tobacco Stocks Now, Ranked In Order

Altria is a legendary dividend stock, because of its impressive history of steady increases. Altria has raised its dividend for 50 consecutive years, placing it on the very exclusive list of Dividend Kings.

On July 28th, Altria reported financial results for the 2020 second quarter. Revenue of $5.06 billion fell 2.5% year-over-year. Smokeable product volume declined 8.7% year-over-year, a full percentage point better than expectations. Smokeless product volume dropped 1%, far better than the 2.7% drop that was anticipated. Adjusted earnings-per-share came to $1.09, up 1% year-over-year. Altria also announced a 2.4% dividend increase.

The company has taken precautions to shore up its financial positions, including drawing $3 billion on its revolving credit facility, suspended its share repurchases, and it withdrew its full-year guidance due to coronavirus uncertainty. That said, the company maintained its target dividend payout ratio of 80%, in terms of adjusted EPS.

Altria’s key challenge going forward will be to generate growth in an era of falling smoking rates. Consumers are increasingly giving up traditional cigarettes, which on the surface poses an existential threat to tobacco manufacturers. Altria expects cigarette volumes will continue to decline at a 4% to 6% annual rate through 2023.

For this reason, Altria has made significant investments in new categories, highlighted by the $13 billion purchase of a 35% stake in e-vapor giant JUUL. This acquisition gives Altria exposure to a high-growth category that is actively contributing to the decline in traditional cigarettes.

The long-term future is cloudy for cigarette manufacturers such as Altria, which is why the company has invested heavily in adjacent categories to fuel its future growth.

Source: Investor Presentation

Altria also recently announced a $1.8 billion investment in Canadian marijuana producer Cronos Group. Altria purchased a 45% equity stake in the company, as well as a warrant to acquire an additional 10% ownership interest in Cronos Group at a price of C$19.00 per share, exercisable over four years from the closing date.

Altria enjoys significant competitive advantages. It operates in a highly regulated industry, which significantly reduces the threat of new competitors entering the market. And, Altria’s products enjoy tremendous brand loyalty, as Marlboro controls more than 40% of U.S. retail market share.

Altria is also highly resistant to recessions. Cigarette and alcohol sales fare very well during recessions, which keeps Altria’s strong profitability and dividend growth intact. With a target dividend payout of 80%, Altria’s dividend is secure.

3. Enterprise Products Partners (EPD)

• Dividend Yield: 10.8%

Enterprise Products Partners was founded in 1968. It operates as an oil and gas storage and transportation company. Enterprise Products has a tremendous asset base which consists of nearly 50,000 miles of natural gas, natural gas liquids, crude oil, and refined products pipelines. It also has storage capacity of more than 250 million barrels. These assets collect fees based on materials transported and stored.

Source: Investor Presentation

In the most recent quarter, Enterprise Products reported a relatively mild 6% decline in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and an 8% decline in distributable cash flow. Lower volumes were responsible for the declines, especially in the company’s Natural Gas Pipelines & Services business which saw operating margin decline by 30%. However, operating margin held flat in the NGL Pipelines & Services segment, and increased 24% in the Crude Oil Pipelines & Services segment.

Enterprise Products expects 2020 growth capital expenditures in a range of $2.5 billion to $3 billion. The company plans to significantly curtail growth capital spending over the next two years to preserve cash flow. For 2021 and 2022, Enterprise Products expects to allocate $2.3 billion and $1.0 billion, respectively, for growth capital expenditures.

Despite the weak performance in the first quarter, we believe Enterprise Products still has positive long-term growth potential moving forward, thanks to new projects and exports. For example, Enterprise Products recently placed the 10th fractionator into service at Mont Belvieu, with an 11th expected to be placed into service in the third quarter.

Exports are also a key growth catalyst. Demand for liquefied petroleum gas and liquefied natural gas, or LPG and LNG respectively, is growing at a high rate across the world, particularly in Asia. In total, Enterprise Products has $4.7 billion of projects under construction expected to be placed into service in 2021 and beyond.

In terms of safety, Enterprise Products Partners is one of the strongest midstream MLPs. It has credit ratings of BBB+ from Standard & Poor’s and Baa1 from Moody’s, which are higher ratings than most MLPs. It also had a high distribution coverage ratio of 1.6x in the 2020 second quarter, meaning the company generated approximately 60% more distributable cash flow than it needed for distributions in the most recent quarter.

Another attractive aspect of Enterprise Products is that it is a recession-resistant company. Enterprise Products’ high-quality assets generate strong cash flow, even in recessions. As a result, Enterprise Products has raised its distribution for 21 consecutive years.

In addition, it has world-class assets and a very long history of regular distribution increases. Combined with a high yield above 10%, Enterprise Products is built to outlast even a deep recession.

2. Magellan Midstream Partners (MMP)

• Dividend Yield: 11.2%

Magellan Midstream Partners has the longest pipeline system of refined products in the U.S., which is linked to nearly half of the total U.S. refining capacity. Its network of assets includes 9,800 miles of pipeline, 54 storage terminals, and 46 million barrels of storage capacity.

Refined products generate approximately 59% of its total operating income while crude oil and marine storage represents the remaining 41%. Magellan has a market capitalization above $8 billion.

Source: Investor Presentation

In late July, the company reported (7/30/20) financial results for the second quarter of fiscal 2020. Distributable cash flow fell by one-third, from $314.8 million to $209.5 million, due to the reduced demand for refined products and the suppressed commodity prices caused by the pandemic. While MMP has a resilient business model, it is not immune to the coronavirus crisis.

On the other hand, it essentially kept its guidance intact for distributable cash flow of $1.0-$1.05 billion this year. MMP intends to maintain its quarterly distribution constant for the rest of the year and expects a distribution coverage ratio of 1.10-1.14.

Magellan’s extensive and diversified network of pipeline and storage assets is a significant competitive advantage. Another competitive advantage is its fee-based model in which the company generates fees based on volumes transported and stored and not on the underlying commodity price. This helps insulate Magellan from sharp declines in commodity prices. Only ~10% of its operating income depends on commodity prices.

Magellan has promising growth prospects in the years ahead, as it has several growth projects under way. During the last decade, the company invested $5.4 billion in growth projects and acquisitions and has exhibited much better performance than the vast majority of MLPs.

Magellan has an excellent track record of steadily growing its distribution, and strong distribution safety. Magellan has increased its distribution 71 times since its initial public offering in 2001, including a 3% year-over-year increase in January. Magellan also has a strong debt profile, with a high credit rating of BBB+ from Standard & Poor’s.

Therefore, Magellan earns a high ranking on this list for its combination of a double-digit yield, but also its strong credit rating and long history of distribution increases.

1. Energy Transfer LP (ET)

• Dividend Yield: 22.1%

Energy Transfer is a midstream oil and gas Master Limited Partnership, or MLP. Energy Transfer’s business model is storage and transportation of oil and gas. Its assets have total gathering capacity of nearly 13 million Btu/day of gas, and a transportation capacity of 22 million Btu/day of natural gas and over 4 million barrels per day of oil.

Energy Transfer’s diversified and fee-based assets provide the company with steady cash flow, even when oil and gas prices decline. As a midstream operator, Energy Transfer’s cash flow relies heavily upon volumes, and less so on commodity prices.

Source: Investor Presentation

Energy Transfer reported second-quarter results in August. Adjusted EBITDA of $2.44 billion represented a decline of 14% year-over-year, a direct result of the coronavirus pandemic and related economic slowdown, which caused volumes and market prices to decline. Distributable cash flow of $1.27 billion fell by 21%. However, the company achieved a strong distribution coverage ratio of 1.54x for the quarter, which generated excess cash flow of $448 million beyond distributions for the quarter.

In response to the coronavirus, the company further reduced its growth capital expenditures by an additional $200 million. Energy Transfer expects growth capital expenditures to be approximately $1.3 billion in 2021 and $500 million to $700 million in 2022 and 2023.

The company is also making strong progress on several growth projects which should be adding to cash flows in the coming quarters and years.

Source: Investor Presentation

On September 1st, Energy Transfer announced the completion of the Lone Star Express Pipeline expansion project. The pipeline adds over 400,000 barrels per day of Natural Gas Liquids capacity.

Separately, the $5 billion acquisition of SemGroup Corp. will also fuel Energy Transfer’s growth. The SemGroup acquisition expanded its natural gas liquids and crude oil capabilities with the addition of 18.2 million barrels of storage capacity. The gathering assets are in the DJ Basin in Colorado and the Anadarko Basin in Oklahoma and Kansas, as well as oil and NGL pipelines connecting the DJ and Anadarko basins with crude oil terminals in Oklahoma.

The company’s new projects will help secure its attractive distribution, which currently yields nearly 20%. Energy Transfer had a distribution coverage ratio of 1.54x in the second quarter.

Debt remains an issue, as the company ended the second quarter with a leverage ratio of 4.29x. Energy Transfer has a very high yield and appears to have a secure payout, although such a high yield indicates at least some doubt as to the sustainability of the distribution.

Investors should be aware that stocks with extremely high yields are often signs of an unsustainable payout. Therefore, risk-averse income investors may want to look elsewhere. But for investors who accept the risk, Energy Transfer is an attractive stock for income.

Final Thoughts

Interest rates have seriously declined. After two years of the Federal Reserve raising rates, the central bank announced immediate and profound interest rate reductions. Investors might scramble to search for suitable income in a low-rate environment, but these high-yield stocks are still presenting strong income generations ability.

The 10 stocks on this list have high yields above 5%. And importantly, these securities generally have better risk profiles than the average high-yield security. That said, a dividend is never guaranteed, and high-yield stocks are potentially at risk of dividend reductions or suspensions if a recession occurs in the near future. Investors should continue to monitor each stock to make sure their fundamentals and growth remain on track, particularly among stocks with 10%+ dividend yields.