Dividends are often the key factor for long term investors in differentiating between risky and safe plays. In times of great market volatility, or even bear markets, expected quarterly cash payout are safe havens for investors. The global markets are heading for a 10-year expansion, but some underlying risks do remain present.
This last week, companies reported mixed earnings. Many top companies did not deliver on expected EPS and revenue growth estimates. Companies like Amazon and Nvidia revised and lowered their future guidances. However, the CBOE Volatility Index (often termed the investor’s “fear index”) has steadily declined for the past few months, as a new quarter of expansion has descended on the markets.
Regardless, high market capitalization dividend picks are typically safe bets.
AT&T (T) is arguably the largest player in the media and telecommunications business. They own a variety of subsidiary media companies such as DirecTV. It acquired Time Warner for $85.4 billion. With all of these mergers and acquisitions, however, the risk with AT&T is highly prevalent within its leveraged structure. AT&T has had to resort to great leverage to acquire companies, completing many LBOs (leveraged buyouts).
That being said, AT&T is the largest company chasing a 5G network, with constant research and development funding being poured into creating a 5G network. With low latency and high speed, the company will look to prove its continued consumer growth numbers. AT&T has also made it a priority this year to deleverage itself, paying off debts and decreasing spending. With excellent management and a dominating market presence, AT&T still maintains a yield of more than 6.5%, an unprecedented number.
Exxon Mobil Corporation and Chevron Corporation
Exxon Mobil (XOM) and Chevron (CVX) are both major players in the energy sector, particularly in oil and gas, controlling nearly all aspects of the production and sales processes within each corporation. This should be expected, given their longstanding history as subsidiaries of Standard Oil, Rockefeller’s oil monopoly. With dividend yields of 4.36% and 4.00% respectively, both look to be excellent picks to give a portfolio exposure to the energy sector.
Both companies continue to control vast expanses of mines, oil rigs, and research and development technologies for energy, as two of the most powerful companies in the world. Energy will remain a necessity across the world, and both companies will remain the top players in the industry. As oil prices should continue to rise, both corporations will seek to benefit and should increase production of energy. Despite failed OPEC supply cuts, Exxon and Chevron should be solid long-term plays.
With a yield of 4.89%, Qualcomm (QCOM) is an excellent stabilizer for any portfolio. With a diversified set of assets, ranging from semiconductors to telecommunications, Qualcomm is another excellent example of a growth-potential. Like AT&T, Qualcomm is rapidly trying to expand and develop its 5G network, which could inevitably magnify capital inflows from investors.
Qualcomm has recently had more than its fair share of issues, ranging from a failed buyout attempt from Broadcom (AVGO) to conflicts with Apple (AAPL) as a result of a court case regarding the usage of Qualcomm modems in the iPhone. As a result, not only is Qualcomm trading at a discount right now, but its yield remains strong.
High Yields Too Good To Be True
In today’s market, many dividend stocks seem to be safe, high return plays. One may look at equities such as Mesabi Trust (MSB) or MV Oil Trust (MVO), and see dividend yields of nearly 20%. Upon closer inspection, these equities trade at incredibly low volumes. The average volume of Mesabi Trust is only around 130,000. The total market capitalization is only $380 million, and the stock has historically been subject to wild price swings. There is no point in speculating on a 20% yield if the stock crashes to half of its original value.
When finding good dividend stocks, one must understand that a high yield does not equate to a safe play. One must also realize that just because a dividend exists, it is not immune from a cut if the company’s future prospects are not positive. A good dividend stock is just like any other stock you would want to purchase — excellent management, a good balance sheet, and a sustainable strategy.