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5 Dividend Stocks with Sustainable Long-Term Yields

January 24, 2012 | About:
Though there are many stocks in the U.S. which offer dividend yields higher than the 10-year treasury yield, it’s the ability of the company to maintain the dividend yield that matters the most. In this article we will analyze five dividend stocks that we consider sustainable dividend players.

Telefonica SA (TEF) is a provider of telephony services. Shares of the company are currently trading around $17 per share. Over the last 52 weeks, its shares have traded between $16.53 and $27.31. Telefonica has a gross margin of 52% and an operating margin of 10.5%. It has a payout ratio of 283%. The company reported a dividend yield of 9.9% and a 15% return on equity. Over the last five years, its dividend has shown a growth rate of 29.28%, and these dividends have been increasing over the past eight years. Telefonica was the second-highest dividend yielding stock among ten European-based companies on the NYSE. It has given a target dividend distribution of $2.5 per share in 2013, which should be a good sign for investors.

Alerian MLP ETF (AMEX: AMLP) is an investment fund that invests in the Alerian MLP Infrastructure Index. Shares of the company are currently trading at $16.60 per share and have traded between $13.10 and $17.18 over the last 52 weeks. Alerian MLP has a dividend yield of 6.02% and its last net dividend was $0.25 per share. This sector is expected to outperform, so despite the 0.85% annual expense ratio, investment in it seems sensible.

Old Republic International Corporation (ORI) is an insurance and mortgage provider in North America. Shares of the company are currently trading around $9 per share. Over the last 52-week period, its shares have traded between $7.15 and $13.28 per share. Analysts' average share price estimate for the company is $17 per share by the end of 2012. Old Republic is currently generating negative returns on equity and its profit margin is also negative. On the other hand, it reported a high dividend yield of 7.8%.

Its beta of 0.88 indicates that the stock is not quite volatile, which is a good sign. Old Republic’s quarterly revenue growth was around 13%, which was significantly higher than the industry average at 0.3%. This low industry average was mainly due to the relatively bad performance of its peers. Old Republic has a five-year average dividend growth rate of 3.51% and the company has been paying dividends since 1942. Over the last 30 years, the company’s dividends have been increasing, despite its recent performance.

CBL & Associates Properties (CBL) is a real estate investment trust (REIT). Shares of the company are currently trading around $16 per share, and have traded between $10.41 and $19.35 over the last 52 weeks. It reported a relatively high beta of 3.66, indicating that the stock is highly volatile. The company has a dividend yield of 5.4%, and a profit margin of 7%. CBL managed to generate a return-on-equity of 3%, and both its operating and gross margins, at 39% and 71% respectively, were slightly higher than the industry averages.

With its $380 million worth of financing activities, CBL managed to generate more than $160 million in cash. Also, the company traded higher than their 200 day moving average of $15.91. Stocks of certain REITs, including CBL, have been seeing an increase over the last three months due to a number of reasons. This makes CBL an attractive stock, in the near future.

Seadrill Limited (SDRL) is an offshore drilling contractor. Shares of the company are currently trading at $36 per share. Over the last 52 weeks, its shares have traded between $24.68 and $38.49 per share. The company reported a high dividend yield of 8.6%. Seadrill has a high beta of 1.72, indicating volatility in the stock. The company managed to generate a return on equity of 31% and a profit margin of 41%. It also reported a gross margin of 58%, and an operating margin of 41%.

Seadrill’s lower-than-industry price-to-equity ratio of 9x is good news for investors. The company has a robust three-year dividend growth rate of 115% and has been paying dividends since 2008. Growth opportunities in the oil sector will be a positive catalyst for Seadrill’s future valuations. Its high operating margin and dividend growth rate are indicative of constant future dividends.

About the author:

Doug Ehrman
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

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