When writing this article, my plan was to find an ideal list of high-yield stock that is expected to have a higher dividend next year. To make my list, the stocks would also have to have a very low price-to-earnings ratio. The following is a list of five such stocks that I found.
The average dividend yield of the S&P 500 is 1.82%. So each of these dividend stocks must have a significantly higher dividend yield than that. In addition, we are looking for stocks that I expect to grow their dividend.
The average price-to-earnings ratio of the S&P 500 is 24 times. But over time, the median P/E ratio has been 14.8 times. So our list of these stocks must have a much lower ratio than 15 times earnings.
Here is what I found: The median dividend growth rate for the five stocks on this list is 10%.
And voila. The stocks on this are cheap, have good dividend growth rates and are high-yield dividend stocks. Moreover, the companies can afford the dividends — the average payout ratio is only 60%. This list of stocks is worth investigating further.
Dividend Stocks: AbbVie (ABBV)
Expected Dividend Growth Next Year: +10.3%
Dividend Yield: 4.8%
Forward P/E Ratio: 9x
AbbVie (NYSE:ABBV) is a $130 billion market value drug manufacturing company. It has consistently raised its dividend over the past five years. You can see this in the chart I have prepared.
On average, dividends have increased by 21% per year over the past four years. The dividend is expected to rise 10% this year.
In addition, ABBV stock is very cheap. In 2020, expected earnings of $9.91 per share put ABBV stock at a P/E of 9 times.
As it stands, the dividend per share for ABBV stock is well covered by its earnings. The annual $4.72 dividend per share represents just 53% of expected earnings of $8.93 per share.
Abbie made a cash and stock bid for Allergan (NYSE:AGN) in late June 2019. AGN is a $61 billion market cap U.K./U.S. drug company. The deal is expected to close in early 2020. AbbVie claims the deal will significantly increase shareholder value.
Dividend Stocks: Ryder System (R)
Expected Dividend Growth Next Year: +15.6%
Dividend Yield: 4.2%
Forward P/E Ratio: 17.8x
Ryder System (NYSE:R) stock is expected to post a 15% higher dividend next year. In addition, the dividend yield is over 4%.
What is also interesting is that Ryder has been increasing its dividend per share every two or three quarters. The standard practice is to do so every four quarters. So this is indicative that Ryder is very shareholder-friendly with its dividend policy. In addition, Ryder has been buying back shares every quarter.
Ryder generates a lot of operating cash flow from its truck leasing operations. However, the residual values of its rental fleet have been declining faster than expected in the past few quarters. That is why Ryder stock has been cheap lately.
However, a close study of the company’s earnings presentation helps explain how Ryder takes the long view. For example, Ryder expects to produce over $2.65 billion in operating cash flow this year.
That’s good because the dividend payments cost only about $117 million per year, so Ryder can easily afford it.
Dividend Stocks: Moelis & Company (MC)
Expected Dividend Increase Next Year: +14%
Dividend Yield: 6.2%
Forward P/E Ratio: 12.6x
Moelis (NYSE:MC) stock has a very high dividend yield and a high expected dividend growth rate. This investment banking company, with 500 employees and 19 offices worldwide, has a history of annually paying out large special dividends on top of its regular quarterly dividends.
For example, in 2018, Moelis regularly paid a quarterly dividend of 47 cents per share. But two times during the year, it also paid out $1.5o per share.
In 2019, Moelis raised its regular quarterly dividend to 50 cents per share. But is also paid out a special dividend of $1.25 per share. It is possible that Moelis will pay out another special dividend at the beginning of next year. Moelis is extremely dedicated to paying out its free cash flow to shareholders.
In fact, a presentation on the Moelis website states that Moelis is committed to returning all of its excess cash to its shareholders. This includes a $100 million share repurchase program in 2019.
It also has a picture of how well it has done this in the past through dividends, special dividends, and share repurchases. This picture also shows the very high dividend yield each year.
Moelis does not provide any guidance for its earnings. But given its track record, you can expect that Moelis stock will likely be a very good investment over the coming year, given its huge commitment to return of capital to shareholders.
Dividend Stocks: Artisan Partners Asset Management (APAM)
Expected Dividend Growth This Year: +7.7%
Dividend Yield: 8.3%
Forward P/E Ratio: 11.5x
Artisan Partners (NYSE:APAM) stock has a high dividend yield and an expected 7.7% higher dividend to be paid next year. Moreover, just like Moelis stock above, Artisan Partners, an asset management company, has a history of paying out large special dividends once a year.
For example, APAM stock normally seems to pay out 60 cents to 65 cents per quarter as a regular dividend. In addition, every February APAM seems to make a special dividend payment, reflecting excess capital generated from the prior year.
For example, in 2018, APAM stock paid out 79 cents in February 2018. In February 2019, APAM paid out $1.03 per share in another special dividend.
I estimate that APAM will likely pay out another $1 per share or higher this coming February 2020. This is likely I believe since the stock market has done quite well this year. APAM makes money from management and performance fees based on its stock market performance.
Dividend Stocks: Carnival Corp (CCL)
Expected Dividend Increase Next Year: +3%
Dividend Yield: 4.3%
Forward P/E Ratio: 10.6x
Carnival (NYSE:CCL) stock is a high-yield dividend stock with an expected dividend increase of at least 3% next year. You can see from the chart at right that Carnival, the cruise ship company, has consistently increased its dividend per share each year.
Carnival’s earnings per share for the quarter ending Aug. 31, 2019, rose 7% year-over-year. Revenue was also 12% higher than the prior year. It seems that Carnival is having a good year. I would expect that this will continue.
Carnival itself projects that its 2019 revenue will be higher by 4% year-over-year along with a similar increase in its capacity. Carnival also says that it expects revenue to be higher by 7% in 2020 along with a similar increase in capacity.
On Dec. 20, Carnival also announced its earnings for its Q4 ending November. The double beat proves this stock is still in a good position.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.