Safest Dividend Yields In A Volatile Market

Cash is king, especially in a severe economic decline.
We do the diligence on core earnings to measure the reliability of dividend yields.
These firms are in a better position to maintain dividends in the future, even as economic conditions deteriorate.
More than ever, cash is king, especially in a severe economic decline. Only firms with strong core earnings will be able to sustain dividends. We do the diligence on core earnings to measure the reliability of dividend yields. Safer dividend stocks are this week’s Long Idea.
Below, we identify firms with attractive dividend yields and the cash flows to sustain them. These firms are in a better position to maintain dividends in the future, even as economic conditions deteriorate.
Not All Dividend Yields Are Created Equal
High-yielding dividend stocks hold great appeal for some investors. But that appeal is only realized if the firm generates the free cash flow needed to pay its promised dividend.
Here are the criteria we used to identify the safest dividend yields:
Dividend yield greater than 3.5% Positive free cash flow yield over the trailing twelve-month period. Cumulative five-year FCF greater than cumulative five-year dividend payments. Net debt less than 25% of market cap. A Neutral-or-better Risk/Reward rating. We then ranked these firms based on the surplus between FCF and dividend payments over the last five years.
Figure 1 includes the firms with a FCF-minus-dividends surplus greater than $5 billion.
Figure 1: Safe Dividend Yields – FCF vs. Dividend Surplus Greater Than $5 Billion

*Excludes Real Estate Investment Trusts (REITs)Sources: New Constructs, LLC and company filings.
The firms in Figure 1 vary by industry, but each has generated significantly more in free cash flow than they have paid out in dividends over the past five years. In a slowing or even contracting economy, ample cash provides a life raft to ride out tough times while maintaining returns to... Read more