High Yielding Dividend Stocks – 5 Top Paying Dividend Stocks for 2019

High Yielding Dividend Stocks for 2019

high yielding dividend stocksHigh yielding dividend stocks appeal to many investors. Retirees can supplement their retirement income because higher yields can provide generous income.  Many of the highest paying dividend stocks offer a yield in excess of 4%. Some even yield 10% or more.  However, not all high yield dividend stocks are safe. It is a good idea to understand where high yielding dividends can be found.  It is also a good idea to be able to identify which high dividend stocks are risky.

What are High Yield Dividend Stocks 

The dividend yield for the overall stock market has remained below 4% for most of the last 25 years.  In today’s era of record-low interest rates, a 4% dividend yield is considered quite high. In fact, it is about twice as high as the market’s average current dividend yield.  Regardless, why do some dividend-paying stocks offer much higher yields than others?

  1. In some cases, a high dividend reflects a company’s mature status. A mature business can find itself at a point where relatively few profitable growth investments are available.  Therefore, it returns most of its cash flow to shareholders in the form of dividends.  Utilities are good examples of mature businesses with high yielding dividend stocks.
  2. Other high yielding dividend stocks have strict tax structures that require them to distribute most of their cash flow to investors.  Real Estate Investment Trusts (REITs) were created to help America fund the growth of its real estate.  REITs pay no federal income tax as long as they pay out at least 90% of their taxable income as dividends.
  3. Some stocks with high dividends are able to offer generous payouts because they use financial leverage to magnify their profits.  Master Limited Partnerships (MLPs) were created to encourage investment in certain capital-intensive industries. Most MLPs operate in the energy sector and own expensive, long-lived assets such as pipelines, terminals, and storage tanks. They can pay high dividends because they do not pay any income taxes.  The tax is passed through to the share holders who are taxed on their dividend earnings.
  4. And then there are high yielding dividend stocks that have landed on hard times. Unfavorable business conditions have reduced their cash flow to the point where investors no longer believe their dividends are sustainable.  In these instances, the high yield is a mirage.

Risk Factors for High Yield Dividend Stocks

Some of the biggest risk factors to be aware of for a stock are:

  • The Industry it operates in
  • The amount of operating leverage in its business model
  • The amount of financial leverage on the balance sheet
  • The size of the company
  • The current valuation multiple

Take REITs and MLPs, for example. These high yield stocks distribute almost all of their cash flow to investors to maintain their favorable tax treatments.  They must constantly raise external capital in the form of debt and equity to grow.  Because these types of companies need to issue debt and sell additional shares to keep growing, they face additional risks compared to basic corporations.  If access to capital markets becomes restricted or more expensive these types of high dividend stocks can suddenly be very vulnerable.

Compare this to a Blue Chip Company like Apple Computer or Amazon.  Blue Chips can use the free cash flow they generate to pay dividends while still retaining plenty of funds to reinvest in new projects.  In this way, they can grow earnings and pay dividends along the way without needing to issue equity or new debt.

High Dividend Stocks List for 2019  – 5 Top Paying Dividend Stocks       

Top Paying Dividend Stocks – ExxonMobil (XOM) 

Dividend Yield: 4.6%,   Dividend Safety Score: A-,   Dividend Growth Streak: 36 years

ExxonMobil was founded in 1870 and is one of the world’s oldest oil companies. It’s also the world’s largest publicly traded integrated oil conglomerate.  It has nearly 30,000 oil & gas wells on six continents.  The company operates in three distinct business segments: upstream oil & gas production, downstream refining, and specialty chemicals.  ExxonMobil’s greatest strengths are its scale, diversification, and conservative management team.

If Exxon were its own nation, its production would make it one of the top 10 largest oil producers in the world.  Because of its size and scale, Exxon can achieve lower costs, which is essential in a commodity market. The company’s integrated business model also provides cash flow diversification.  This helps it ride out energy cycles with less volatility than most of its rivals. Exxon’s management team has a long track record of excellent capital allocation.  This management team has helped the company enjoy higher returns on capital than all of its major peers.

Exxon has a long, established history of rewarding shareholders with safe, growing dividends.  The company has a solid balance sheet that can weather volatility in the energy market.  Despite risks, Exxon is well-prepared now and in the foreseeable future to counter these risks.  Exxon’s current dividend yield is 4.6%.  This represents an attractive buying opportunity to investors with a long term view.  The company has paid an uninterrupted quarterly dividend since 1882.  Further, it has increased its payout for more than 30 consecutive years.

While Exxon’s dividend grew nearly 9% annually over the past decade, payout growth has slowed in recent years.  This is largely due to the dramatic drop in oil prices.  Regardless, the company is still able to generate modest dividend increases.  Cash flow from operations and asset sales exceed the company’s dividend, providing some more breathing room. If energy prices remain depressed, Exxon will arguably be the last oil company still standing among the high yielding dividend stocks.

Summary –  Exxon Mobil is the world’s biggest vertically integrated oil company. It is a truly international company with sales literally in every corner of the globe. It owns assets in more than 100 countries and the US is home to about than 40% of its assets, with Canada (16%), Australia (6%) and Nigeria (5%) next on the list. The US accounts for roughly one third of the revenue (and falling).

Top Dividend Paying Stocks – National Retail Properties (NNN)

Dividend Yield: 4.2%,  Dividend Safety Score: A,   Dividend Growth Streak: 29 years

National Retail Properties is a real estate investment trust founded in 1984. The REIT owns and develops properties and leases them under long-term contracts to retail tenants. It has more than 2,500 properties across 48 U.S. states which are leased to more than 400 diverse tenants across 37 lines of trade.  The company has become a preferred stock holding for income investors that seek stable dividend income.  With increasing market volatility, it makes sense to rotate funds into higher-quality dividend-paying stocks.  National Retail Properties fits that bill while offering a yield of 4.23 percent.

Summary – National Retail Properties’s shares have dropped off in December, but nonetheless provide income investors with a lot of dividend value in times of market turmoil.  The company’s shares are a “Strong Buy”. The company has a strong, diversified real estate portfolio with excellent occupancy rates.  Their robust balance sheet adds downside protection, with superb distribution coverage.

High Yield Dividend Stocks – Verizon Communications (VZ) 

Dividend Yield: 4.3%,  Dividend Safety Score: A- ,  Dividend Growth Streak: 12 years

Verizon is the largest wireless services provider in the USA and provides 4G LTE coverage to over 98% of the country’s population.  Verizon has more than 116 million wireless retail connections, 5.9 million fiber-optic network internet subscribers, and 4.6 million fiber-optic video subscribers. In 2017, Verizon was the most profitable company in the telecommunications industry worldwide.  Verizon’s business can be broadly classified into two categories – wireless operations (86% of EBITDA) and fiber-optic/line operations (14%). The company is also expanding into fast-growing areas such as the Internet of Things and digital media, which account for less than 10% of sales.  Verizon’s competitive advantage is its large subscriber base and valuable telecom spectrum. The company consistently scores the highest in wireless reliability, speed, and network performance compared to its peers AT&T, Sprint, and T-Mobile.

While the industry is intensely competitive, Verizon’s advanced network technologies and leading network coverage help it maintain its huge subscriber base. Verizon’s revenue stream is also regular and reliable since it is engaged in providing a non-discretionary service.  There is also little room for new entrants because the telecom industry is very mature. Spectrum licenses are extremely expensive and infrequently available, and there are only so many wireless subscribers in the market to fund these costs. Moreover, huge spending is required to develop new technologies. Verizon has been at the forefront of developing 5G wireless technology.

Summary – The company announced strong subscriber numbers for the period ended December 31, 2018.  Verizon should be viewed as an income play with great dividend growth prospects.    On January 8, 2019, Verizon’s (VZ) stock jumped by almost 3% after management reported strong subscriber numbers for the most recent quarter. This announcement is extremely encouraging news for this large telecom as it heads into 2019.   Verizon enters 2019 after a year of outperforming both its closest peer, AT&T (T), and the broader market by wide margins.  Verizon continues to distribute wealth to their shareholders via dividends.  During the last 20 years, the company has raised the dividends several times, but there has never been a dividend cut. Dividends have grown at a Compounded Annual Growth Rate of more than 2%, over the last two decades.  Verizon is at the top of our list for high yielding dividend stocks to watch for 2019.

Best Dividend Stocks Buy – Duke Energy (DUK) 

Dividend Yield: 4.4%, Dividend Safety Score: B,   Dividend Growth Streak: 13 years

Founded in the early 1900s, Duke Energy has become the largest electric utility in the USA. The company’s operations span the Southeast and Midwestern US to serve approximately 7.6 million electric customers and 1.6 million gas customers.  Regulated electric utilities account for 89% of Duke Energy’s earnings, but the company also has a fast-growing gas infrastructure and utilities business and a commercial portfolio of renewabe energy investments.  Management sold Duke Energy’s international holdings (which was 5% of earnings) in 2016 to reduce its earnings volatility and focus the company completely on its core domestic operations.  Many utility companies are basically government regulated monopolies in the regions in which they operate. Almost all of Duke’s utilities function as sole suppliers within their service territories.

Summary – Duke Energy provides a risk-averse investment opportunity.  The company displays strong business advantages, offering an attractive dividend for a reasonable price.  Duke Energy’s electric and utilities businesses primarily operate as the sole supplier of electricity within their service territories. This provides DUK with pricing autonomy and a strong aversion to competition. DUK operates as a natural monopoly resistant to competitors as the infrastructure required to produce and deliver electricity is cost prohibitive to maintain and facilitate. Demand for electricity is inelastic and pricing for the company’s electric services is set by state approved commission rates. Utility providers are subsidized by the state so they can defer business costs on the supply end and in most cases, customers have no other electric utility alternatives.

Best Dividend Stocks Own – Enterprise Products L.P. (EPD) 

Dividend Yield: 6.4%,   Dividend Safety Score: B,   Dividend Growth Streak: 19 years.

Enterprise Products Partners is one of the largest integrated midstream energy companies in North American. It owns 50,000 miles of pipelines, 27 natural gas processing plants, 22 natural gas liquids (NGL) and propylene fractional refineries, 14 billion cubic feet of natural gas storage capacity, and 260 million barrels of other storage capacity. The partnership also has a marine transportation business.  Natural gas liquids (NGLs) transportation and processing provides the bulk of Enterprise Products Partners’ gross profit.

Summary – Enterprise Products Partners is one of the best-managed midstream companies in the industry.  There is a buying opportunity as EDP has good distribution coverage, low leverage for the industry, and not a lot of sensitivity to oil prices.  Enterprise Products Partners continues to be one of the safest midstream investments for conservative investors. The company has a high yielding dividend stock but also provides a high level of safety and sustained growth.  The business transports, stores, processes, and exports energy products, with a strong focus on natural gas liquids.

High Yielding Dividend Stocks – Bottom Line

High yielding dividend stocks appeal to many investors.  Many of the highest paying dividend stocks offer a yield in excess of 4%. Some even yield 10% or more.  However, not all high yield dividend stocks are safe. It is a good idea to understand where high yielding dividends can be found.  It is also a good idea to be able to identify which high dividend stocks are risky.

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For more information on High Yielding Dividend Stocks, check out Highest Paying Dividend Stocks 

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