In this market, with bond yields so low, dividend paying stocks are more popular than ever. And while everyone loves a check in the mail, not all dividends are created equal.
While a high dividend yield is nice, a safe dividend is better. Choosing stocks with low payout ratio’s, the percentage of earnings that are paid out in dividends, is a great way to make sure your dividends are safe.
Here are three great companies with safe dividends, that you should consider buying now.
Dividends, naturally flavored
When you think of classic dividend stocks, Dr Pepper Snapple Group Inc. (NYSE:DPS) is probably not the first name that comes to mind. Over the past five years this company has been known as a growth stock, as they’ve grown earnings in excess of 8% annually. So, some investors may be surprised to learn that Dr Pepper Snapple Group Inc. (NYSE:DPS) is a true dividend dynamo. Let’s take a closer look.
This stock actually pays a hefty 3.11% dividend yield, that’s growing. That’s right, it may surprise you but Dr Pepper Snapple Group Inc. (NYSE:DPS) has raised their dividend four times since 2009 including once this year. How have they been able to do this?
Well, the first reason goes back to the payout ratio. Despite having a mammoth dividend, Dr Pepper Snapple Group Inc. (NYSE:DPS) pays out less than 60% of its earnings to investors. Even better, the company is still growing at a tremendous clip. Just this past quarter saw a 15% EPS beat; if the company keeps growing this fast, that payout ratio will get smaller. The dividend will be safer.
I’m betting that it does. Like The Coca-Cola Company (NYSE:KO), DPS only focuses on beverages which gives it a leg up on competitor PepsiCo, Inc. (NYSE:PEP) because it doesn’t rely on its food business for profits. Logistical efficiency and less perishable inventory, are just two of the operational benefits from this business model that go straight to the bottom line.
When you factor in the fact that Dr Pepper Snapple Group Inc. (NYSE:DPS) has a tremendous mixed and packaged drink business, their edge in “perishable” inventory gets even better. In other words, the fact that this food company’s products “can’t spoil” will lead to even better earnings.
It seems like General Electric Company (NYSE:GE) has been stuck in the investors dog house, ever since Jeff Immelt cut the dividend in the peak of the great recession. But some great things have been happening at General Electric Company (NYSE:GE) since then.
To name a few things:
- General Electric Company (NYSE:GE) has actually raised its dividend five times
- GE has shed less profitable, non-core businesses
- GE, despite paying a yield over 3.3%, has kept its payout ratio below 60%
Really, all of those factors feed off of one another. To improve its fiscal position, General Electric Company (NYSE:GE) made a concentrated effort to minimize the (risky) dependence on its finance arm. That dependence is, after all, what led to the dividend cuts. Now, with the recent sale of NBC, GE is focusing on its core businesses again (industrial, aviation, etc.) and winning large orders (such a huge recent order from The Boeing Company (NYSE:BA)).
This consolidation of business lines, coupled with prudent (albeit tough) financial decisions has made for a much stronger GE. With a low pay-out ratio, and a less risky earnings stream–not to mention real growth potential–General Electric Company (NYSE:GE)’s dividend is as safe as it’s been in years.
Think about dividends, differently
What is an investor to do with Apple Inc. (NASDAQ:AAPL) these days? It seems the days of hypergrowth have passed, and now the big name hedge fund managers are even exiting the stock. But isn’t there anything left to love about this tech giant?