I wish that I had a dollar for every horrifying story I read about the fiscal cliff and its effect on the general appeal for dividend stocks. I have read so many by now that I wish I would have decided to backpack across South East Asia just to avoid them. Ultimately, fiscal cliff fears surrounding dividend stocks were completely blown away. Dividend stocks still stand strong and income investors remain on the hunt for the next addition to their portfolios. Well for the scary story writers, they too have settled down on to their routine business of creating the next fad story.
I consider investing in high dividend yielding stocks as a safe bet, because of two reasons. One, these companies have a strong cash flow to distribute dividends and secondly they have secure future revenue inflows. One more thing which I like about them is their performance in the long horizon. Keeping these in mind, I have screened three high dividend yielding stocks PPL Corporation (NYSE:PPL), AT&T Inc. (NYSE:T) and Southern Copper Corp (NYSE:SCCO). These stocks have consistently declared high dividend and helped the portfolios of its investors by providing stable cash returns. Let’s discuss them in detail:
|Name of Company||Forward Dividend Yield||Payout Ratio||5 Year Average Dividend Yield|
|Southern Copper Corporation||2.40%||72.00%||6.20%|
Source: Yahoo Finance
The recently settled Kentucky and Pennsylvania rate cases of PPL’s subsidiaries, Louisville Gas and Electric Company and Kentucky Utilities Company, has resulted in an increase in revenue from electricity and natural gas by ~$99.7 million. Louisville Gas’s base electric and natural gas rates have increased by ~4.8% and ~7.3% while Kentucky Utilities’s base electric rate has increased by ~5.8%. The return on equity (ROE) is ~10.25% of the base rates and the increased rates are implementedfrom the starting of 2013. I estimate ROE for the next few years from these subsidiaries to be around their authorized levels, but expect a double-digit growth in the base rate till 2015.
Additionally, with the disclosure of 4Q12 results in mid February, 2013 the company will give more details about two important factors. The first one is the hedged position of outputs for the year 2014. The company has hedged ~60% of its output for FY14 thereby providing clarity about its future cash flows. This hedged position will be up to ~90% of output. The second important factor is its outlook towards the UK business. The continued strong results of its UK segments shall drive PPL’s share price over the next twelve months. Along with that, I view the recent balance report of OFGEM, the UK Utility Regulator, about the gas distribution companies as a positive sign for the electricity distribution companies as well. I expect that its UK division shall contribute around 50% to the next year’s EPS.
The company recently announced its results for 4Q12. Its consolidated revenue for the quarter was up by ~2.7% year-over-year (y/y), but its profit was down by ~3.9% y/y. Yet, it maintained an increase in EPS by ~10.2% y/y. The increment in EPS was mainly because of extensive share buybacks in4Q12, i.e. ~126 million shares. The company presented a mixed result for the quarter but after considering its guidance for the year 2013, I believe it will post a decent year with its consolidated revenue growth up by ~2%.