The S&P 500 recently indicated that annual dividends have reached $300 billion for the first time ever… almost 60 percent higher than their July 2009 bottom. We know the beauty of the dividend is that investors can rest comfortably at night knowing their checks will arrive regardless of the economic climate—but can companies keep paying at this rate?
Daryl Jones, director of research at Hedgeye Risk Management, said fundamental themes support continued dividend payments. U.S. corporations have more financial flexibility than they have had in years. Cash is near its highest level and debt is near its lowest in more than a decade, companies have been effective at cuttings costs and headcount coming out of the great recession, and finally, interest rates are at all-time lows, which frees up more cash to pay higher dividends.
Through the analysis of big data, Jones identified a few low-risk dividends. Blue chip consumer goods company Proctor and Gamble pays a yield of three percent. Jones says it has a predictable history of raising its dividend and a decent history of cash flow growth.
Darden Restaurants is another one of his favorites. It has a dividend yield close to four percent. Jones said the dividend could increase over time due to some cost-reduction opportunities.
Although you might be tempted by its 7.6 percent dividend yield, one stock to be wary of is LINN Energy. Jones searched and found the oil and gas producer doesn’t have the cash-flow to support the yield.