Top Dividend Stocks for September 2022

Dividend stocks are companies that pay a portion of their profits to a class of shareholders on a regular basis. These companies are usually established, with consistent earnings and a long history of distributing some of those earnings back to shareholders. Distributions are known as dividends and can be paid in the form of cash or additional stock. Most dividends are paid quarterly, but some are paid 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 tough economic times those dividends may be cut to conserve cash.

A useful measure for investors to measure the sustainability of a company’s dividend payments is the dividend payout ratio (DPR). The ratio is a measure of total dividends divided by net income, which tells investors how much of the company’s net income is returned to shareholders in the form of dividends versus the amount the company keeps to invest in further growth. If the ratio exceeds 100% or is negative (meaning net income is negative), this indicates that the company may be borrowing to pay dividends. In these two cases, dividends are relatively more at risk of being cut. We consider a practical example of calculating this ratio later in the article.

Below, we look at the top five dividend stocks in the Russell 1000 based on forward dividend yield, excluding companies with payout ratios that are either negative or above 100%. Dividends, as measured by The S&P 500 Dividend Aristocrats Index outperformed the broader stock market. The index delivered a total return of 0.3% over the past year, above the Russell 1000’s total return of -8.2%. Several of the stocks below outperformed the broader market over that period. These market performance numbers and all statistics below refer to August 24, 2022.

  • Forward dividend yield: 10.26%
  • Payout Rate: 84.07%
  • Price: $37.05
  • Market capitalization: $4.6 billion
  • 1 year total return: -29.4%

OneMain Holdings Inc. is a consumer finance company that provides origination, underwriting and servicing of personal loans, primarily to non-homeowner customers. It operates in the following sectors: Consumer & Insurance and Other sectors. OneMain’s most recent quarterly dividend of $0.95 per share was paid on August 12th to shareholders effective August 8th, 2022.

  • Forward dividend yield: 10.13%
  • Payout Rate: 49.83%
  • Price: $9.87
  • Market capitalization: $4.6 billion
  • 1 year total return: 3.8%

Rithm Capital, formerly New Residential Investment Corp., is a publicly traded real estate investment trust (REIT) that invests in the residential sector. The company’s portfolio includes mortgage servicing assets, mortgage loans, non-agency securities and similar investments. The company announced the change of name and share index in June 2022.

  • Forward dividend yield: 9.17%
  • Payout Rate: 52.33%
  • Price: $10.91
  • Market capitalization: $11.3 billion
  • 1 year total return: -2.7%

Lumen Technologies is a technology and communications company serving consumers and businesses worldwide. It provides a comprehensive platform that brings together network components, cloud connectivity, security solutions, and voice and collaboration tools to help businesses leverage their data and adopt next-generation technologies. On August 22, the Federal Communications Commission (FCC) approved the sale of Lumen’s local exchange carrier (ILEC) business to Internet service provider Brightspeed in 20 states. The value of the sale is approximately $7.5 billion.

  • Forward dividend yield: 8.56%
  • Payout Rate: 45.20%
  • Price: $72.45
  • Market capitalization: $47.4 billion
  • 1 year total return: 172.6%

Devon Energy is an oil and gas exploration, development and production company. The company also transports oil, natural gas and related products and processes natural gas.

  • Forward dividend yield: 8.18%
  • Payout Rate: 75.59%
  • Price: $23.47
  • Market capitalization: $7.3 billion
  • 1 Year Total Return: -1.0%

Starwood Property Trust is a commercial mortgage-focused REIT. The company is active in real estate lending, investment and services in both commercial and residential real estate.

3 indicators used to analyze dividend stocks

Dividend yield: This ratio measures the annual value of dividends received relative to a security’s market value per share. Investors calculate the dividend yield by dividing the annual dividend per share by the current share price. For example, if the company XZY issues a dividend of $10 per year with a current share price of $100, it has a dividend yield of 10% ($10 / $100 = 10%). Those looking for high-yield stocks can start their search by looking at issues with a dividend yield above a certain percentage. Keep in mind that there are many factors other than dividend yield that investors should consider before investing in a stock.

Dividend payout ratio: DPR measures how much of a company’s earnings are paid out to shareholders. Investors calculate the ratio by dividing total dividends by net income. For example, if Company XZY reported net income of $50,000 and paid $15,000 in annual dividends, it would have a DRP of 30% ($15,000 / $50,000 = 30%). This means that the company pays 30% of its profits to shareholders. Generally, a company that pays out less than 50% of its net earnings in dividends is considered stable and has the potential for sustainable long-term earnings growth.

Dividend Coverage Ratio: This ratio measures the number of times a company can pay dividends to its shareholders. Investors calculate the dividend coverage ratio by dividing a company’s annual earnings per share (EPS) by its annual dividend per share. For example, if the company XZY reported $10 million in net income with an annual dividend of $2 million to shareholders, it has a dividend coverage ratio of 5 times. ($10 million / $2 million). Typically, investors consider a higher dividend coverage ratio more favorable.

Advantages of Dividend Shares

Two key benefits of investing in dividend stocks include generating passive income and reinvesting dividends.

Passive income: Companies that pay dividends typically issue them quarterly, creating a reliable stream of passive income that investors can spend as they wish. Dividends also have the added benefit of offsetting share price depreciation.

Dividend Reinvestment: Investors can reinvest the dividends they receive back into the company to acquire more shares. This is called a dividend reinvestment plan (DRIP). Participating in a DRIP allows the investor to benefit from compounding returns – a proven strategy for building long-term wealth.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt an investment strategy. Although we believe that the information provided here is reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

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