Merck & Co., Inc. (MRK), AT&T Inc. (T): Are These Dow Jones Industrial Average 2 Minute (.DJI) Dividends Endangered?

For Merck & Co., Inc. (NYSE:MRK), the secret to sustainable dividends will be to produce new blockbuster drugs to generate profitable revenue to replace what’s been lost from previous drugs that are now off-patent. With plenty of lucrative candidates, that’s not an impossible task, but it is one that will likely take some time. Don’t expect to see Merck’s payout ratio fall in the near future.

The big but hopefully short-term problem
Of course, the worst payout ratio to have is a negative one, and that’s the situation that Hewlett-Packard Company (NYSE:HPQ) finds itself in. But those losses largely come from one-time impairments that slashed about $9 per share from earnings last year. Once the negative impact of those writedowns disappears from the income statement, payout ratios should revert to their more traditional levels, which have typically ranged from 10% to 15% since 2006.

A recovery counts on CEO Meg Whitman’s ability to execute a successful turnaround at the tech giant. But assuming even the current base level of core earnings is sustainable, Hewlett-Packard Company (NYSE:HPQ) should have enough income to sustain its dividend.

Don’t stop watching
The Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI)’s dividends might look secure right now, but things can change quickly. Dividend investors have to stay on top of what’s going on with their companies’ businesses, or else you might be unable to avoid suffering from surprise dividend cuts that fortunately occur only infrequently among Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) stocks.

The article Are These Dow Dividends Endangered? originally appeared on Fool.com is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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