Most stocks that pay meaningful yields today do so because their stock prices are cheap. Their dividends are being paid from earnings that aren’t there. Big oil is a big dividend trap. A low payout ratio — the percentage of earnings a company pays out to investors — is generally a good thing. Until that number turns negative, that is.
BP plc (BP) lost $2.49 per share over the last 12 months while stubbornly paying out $2.40 in dividends – for a big yet unsustainable current yield of 7.8%. How’d it fill the gap? Almost $5 billion in additional long-term debt. Meanwhile Chevron (CVX) and Exxon Mobil (XOM) — paying 5% and 3.9% respectively — are, to their credit, making money. I haven’t recommended a utility to my subscribers in nearly two years because the valuations became too rich. The Utilities SPDR (XLU) vpays just 3.7% today. As discussed, government bonds aren’t going to pay you much today. The 10-year pays 2.2%, and the 30-year just 3%. The SPDR Barclays High Yield Bond ETF (JNK) shed 12% over the last 6 months.
Source: InvestorPlace
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- Dividend Stocks vs. a Safe Distribution Rate
- 12 Under-Valued Dividend Stocks
- Successful Investors Take The Emotion Out
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