Dividend stocks are companies that pay out a portion of their earnings to a class of shareholders on a regular basis. These companies usually are well established, with stable earnings and a long track record of distributing some of those earnings back to shareholders. The distributions are known as dividends and may be paid out in the form of cash or as additional stock. Most dividends are paid out on a quarterly basis, but some are paid out monthly, annually, or even once in the form of a special dividend. While dividend stocks are known for the regularity of their dividend payments, in difficult economic times, those dividends may be cut to preserve cash.
One useful measure for investors to gauge the sustainability of a company’s dividend payments is the dividend payout ratio. The ratio is a measure of total dividends divided by net income, which tells investors how much of the company’s net income is being returned to shareholders in the form of dividends versus how much the company is retaining to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), this indicates the company may be borrowing to pay dividends. In these two cases, the dividends are at a relatively greater risk of being cut.
Below, we look at the top 5 dividend stocks in the Russell 1000 by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%. The first four stocks have outperformed the broader market, represented by the Russell 1000 Index, while the last stock listed below has underperformed. The Russell 1000 has provided a total return of 46.3% over the past 12 months. This market performance number and all data below are as of May 25, 2021.
- Forward Dividend Yield: 13.06%
- Payout Ratio: 85.8%
- Price: $54.93
- Market Cap: $7.4 billion
- 1-Year Total Return: 207.4%
OneMain Holdings is a financial services holding company focused on consumer finance. Through its subsidiaries, OneMain originates and services secured and unsecured personal loans and offers a range of credit insurance products. The company operates a network of 1,500 branches throughout the U.S. and provides a digital platform that allows customers to apply for products online. On April 26, 2021, OneMain raised its minimum quarterly dividend by 56% to $0.70 per share. The dividend is payable on May 13, 2021, to investors who hold qualifying shares in the company at the end of May 6, 2021.
- Forward Dividend Yield: 9.69%
- Payout Ratio: 31.5%
- Price: $9.23
- Market Cap: $12.9 billion
- 1-Year Total Return: 63.2%
Annaly Capital Management is a diversified capital management company that invests in and finances residential and commercial assets. Its investment strategies include agency mortgage-backed securities, residential and commercial real estate, and middle market lending. The company has about $100 billion in total assets.
- Forward Dividend Yield: 8.03%
- Payout Ratio: 29.1%
- Price: $18.53
- Market Cap: $9.7 billion
- 1-Year Total Return: 55.0%
AGNC Investment is an internally-managed real estate investment trust (REIT) that primarily invests in agency residential mortgage-backed securities (RMBS) on a leveraged basis. It finances its holdings through collateralized borrowings structured as repurchase agreements (repos). A repo is a type of financial instrument whereby one entity acting as a borrower sells a financial security to another entity acting as a lender and simultaneously agrees to repurchase that security at a later date and at a slightly higher price.
- Forward Dividend Yield: 7.46%
- Payout Ratio: 56.1%
- Price: $10.24
- Market Cap: $4.8 billion
- 1-Year Total Return: 56.9%
New Residential Investment is a mortgage REIT. It provides capital and services to the mortgage and financial services industries. The company invests in assets with stable, long-term cash flows. Its investment portfolio includes mortgage servicing-related assets, non-agency securities, residential loans, and other related investments.
- Forward Dividend Yield: 7.35%
- Payout Ratio: 69.7%
- Price: $8.25
- Market Cap: $3.6 billion
- 1-Year Total Return: 13.4%
Equitrans Midstream is a midstream energy services company. Its operations are focused on gas transmission and storage systems, gas gathering systems, and water services that support natural gas development and production. Its principal assets are located throughout the Appalachian Basin.
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