While I loved pretty much everything about New Zealand, I’m not sure I’d feel the same way about Spark’s dividend safety.

Growth has been hard to come by for the mobile phone company, which serves a nation of just 5.2 million people.

Revenue has been flat for a decade, and cash flow has been falling for several years.

Meanwhile, the company is paying way more in dividends than it’s generating in free cash flow.

In fiscal 2024, which ended in June, Spark paid shareholders $300 million while producing only $110 million in free cash flow. That’s an enormously high payout ratio of 271%.

This fiscal year, the discrepancy is forecast to be even worse, with the company slated to bring in just $92 million in free cash flow while paying out $314 million in dividends. That would push the payout ratio even higher, to 340%. (Remember, I generally like to see payout ratios of 75% or lower.)

Spark only has $36 million in cash, so the only way it will be able to maintain its dividend is if it takes on more debt.

The payout to shareholders consists of semiannual regular and special dividends, which have been fairly consistent. Combined, the yield comes out to a whopping 12%.

The company hasn’t cut the dividend in at least 12 years and has been raising it for the past few, so it has a solid dividend-paying track record – though it really can’t afford the dividend that it is currently paying. (There have been a few slight reductions in the dividends paid to U.S. investors, but those are because of changes to the exchange rate, not actual reductions to the dividend.)

The first thing the company needs to do is get rid of the special dividend, but even that won’t be enough to make the dividend sustainable.

Despite my fondness for all things Kiwi, I cannot give Spark New Zealand a good rating for dividend safety.

Dividend Safety Rating: F

What stock’s dividend safety would you like me to analyze next? Send me your requests by clicking here.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Is This 12% Yield About to Go “Down Under”? appeared first on Wealthy Retirement.

In this week’s episode of State of the Market, Chief Income Strategist Marc Lichtenfeld uncovers three dividend payers that each trade for less than $10.

One master limited partnership, one telecommunications innovator and one real estate investment trust, these three inexpensive powerhouses offer yields as high as 14% and exposure to three different sectors.

But investors who shop the Nasdaq’s discount rack have an important responsibility beyond discovering the market’s best bargains… They also have to determine whether the payouts these companies offer are sustainable.

They can do this using the same tools that Marc uses each week in Safety Net to assess the dividend safety of some of our readers’ most popularly requested stocks.

As Marc explains in this week’s State of the Market, usually yields as high as 14% come with flashing red warning lights. These might be declining free cash flow, a prolonged history of dividend cuts or soaring debt levels that linger unaddressed.

If any of these describe your favorite picks – regardless of price – steer clear.

The $10-and-under crowd, excluding the companies that pay less than 4%, has 117 members. Of those 117, the three that Marc has singled out this week have some of the most promising yields…

So if you’re looking for a new and low-cost place to put some money to work…

<<Click here to watch this week’s episode.>>

Good investing,

Mable

The post High Yields for a Low Price appeared first on Wealthy Retirement.

Verizon is a massive company with more than 130,000 employees around the world.

How massive? Over each of the past two years, the telecommunications giant delivered more than $20 billion in free cash flow.

This year, free cash flow is forecast to drop significantly to $17.9 billion from $25.2 billion in 2020.

We don’t like to see that. But in Verizon’s case, it’s not too problematic.

That’s because the company is forecast to pay shareholders $10.5 billion in dividends this year. That makes a very comfortable payout ratio of 59%.

I like to see a payout ratio of 75% or below. That means even if a company has a rough year or two, it should be able to sustain its dividend.

Verizon has raised its dividend every year for 15 years straight. It has historically done so in the third quarter.

Despite its falling free cash flow this year, Verizon still has plenty of cash flow to not only pay the dividend but also raise it for a 16th consecutive year. I am confident it will do so.

Verizon’s free cash flow is projected to rise to $18.3 billion in 2022. That’s still well below 2020’s figure, but it’s an improvement over this year’s forecast.

Should free cash flow slip again next year, we’ll have to take a closer look at the company’s ability to pay its dividend.

But as of right now, considering Verizon’s low payout ratio and strong dividend-raising track record, the dividend is very safe.

Dividend Safety Rating: A

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

You can also check to see whether I’ve written about your favorite dividend stock recently. Just click on the magnifying glass on the upper right part of the Wealthy Retirement homepage and type in the name of the company.

Good investing,

Marc

The post A 4.5% Yield Even More Reliable Than Its Network appeared first on Wealthy Retirement.

That’s not too surprising considering that many people still think of AT&T as a phone company.

While much of AT&T’s business is still focused on phone service, the old “Ma Bell” is now also a content company. It owns HBO, Warner Bros. Entertainment, CNN and other programming giants.

This lack of participation in the market’s run higher, along with a juicy $0.52 per share quarterly dividend, give the stock a 6.9% dividend yield – the likes of which, in this market, tend to be reserved for riskier master limited partnerships and real estate investment trusts.

Can investors continue to rely on AT&T’s nearly 7% yield?

After several years in a row of free cash flow growth, AT&T’s cash flow is forecast to take a step backward this year by nearly $2 billion.

SafetyNet Pro does not like declines in free cash flow.

Last year, AT&T paid shareholders $14.9 billion in dividends for a 58% payout ratio. This year, the payout ratio will likely tick higher to 62%.

Under normal circumstances, those payout ratios would be well within my comfort zone. However, these are not normal days…

We’re in a pandemic, and business is not as usual. As a result, I have tightened my payout ratio parameters to make SafetyNet Pro more conservative.

I’d rather be too cautious with a dividend safety rating than get caught unaware when a dividend gets cut.

My previous threshold for a safe payout ratio was 75%. Anything above that received a penalty in the SafetyNet Pro rating. Today, that limit is down to 50%.

As a result, AT&T gets dinged twice, once for last year’s payout ratio being more than 50% and another for this year’s payout ratio.

That said, AT&T is significantly lowering its debt and is committed to its dividend, which has been raised every year since AT&T spun off all of its Baby Bells 36 years ago.

I believe this is a case where SafetyNet Pro is being a little too cautious…

The safety rating suggests a moderate risk of a dividend cut.

However, considering management’s commitment to the dividend, and considering that while the payout ratio is above the new COVID-19 boundary, it’s still below the normal threshold, I suspect AT&T’s dividend is fairly safe.

Dividend Safety Rating: C

Good investing,

Marc

The post Will AT&T Cut Its Dividend? appeared first on Wealthy Retirement.

A major issue was the variability of the company’s free cash flow. Since 2012, free cash flow has been positive only in four years – and that includes estimates for this year.

But I wanted to take another look at Nokia because the Finnish telecommunications company is a big player in the rollout of 5G.

If you’re unfamiliar with 5G, it is the fifth generation of mobile internet connectivity. It is expected to provide much faster speeds and more stable connections.

Some have speculated it will lead to another technology boom, as users will be able to do more things from their mobile devices.

Nokia is a major provider of equipment used to run 5G networks. It has a $3.5 billion deal with T-Mobile (Nasdaq: TMUS) to provide hardware and software for 5G technology.

That is certainly positive news…

But there are quite a few things to be concerned about when it comes to dividend safety.

Free cash flow declined from 1.9 billion euros in 2016 to 1.2 billion euros in 2017. Last year, free cash flow was negative. This year, it’s expected to be a paltry 7 million euros.

Furthermore, Nokia’s dividend history is even more fickle than its free cash flow.

You can see the dividend was stable for a few years at 0.40 euros per share, but it declined in 2012 and was omitted entirely in 2013.

After the payout was reinitiated in 2014, it fell again in 2015 and 2017.

Knowing nothing about the company’s business, all you’d have to do is look at the chart above to understand that Nokia’s dividend is not stable.

While 5G should help the company’s business, until free cash flow rebounds enough to afford the more than 1 billion euros Nokia currently pays in dividends, investors should expect more dividend cuts in the future.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

You can also search Wealthy Retirement to see if I’ve written about your stock recently. Just click on the magnifying glass at the top right of the page and type in the company name.

Good investing,

Marc

The post Is This 5G Player’s Dividend Safe? appeared first on Wealthy Retirement.

The culprit is the fact that Uniti’s largest customer, Windstream (Nasdaq: WIN), filed for Chapter 11 bankruptcy protection.

Uniti Group provides infrastructure and capital to the telecommunications industry, and it is set up as a REIT.

Uniti was spun off from Windstream in 2015. Its CEO is the brother of Windstream’s CFO. And Windstream makes up about 60% of Uniti’s revenue.

So there’s that.

Prior to the Windstream bankruptcy, Uniti’s dividend wasn’t in terrible shape.

Funds from operations (FFO), a measure of cash flow for REITs, has risen each year since the spinoff. In 2018, Uniti is expected to log $392 million in FFO while paying out $425 million in dividends.

That’s not great, but FFO had been expected to rise to $430 million in 2019, which would have covered the dividend.

Uniti has consistently paid a $0.60 per share quarterly dividend since 2015 – so it has a very short track record but no cuts.

Normally, this would add up to a “C” rating. But this isn’t “normally.”

Normally, your largest client doesn’t declare bankruptcy.

Uniti’s management delayed the fourth quarter earnings release while it tries to figure out the effect of the Windstream bankruptcy. It expects to announce results by March 18.

On Monday, Uniti announced that it would lower its dividend. In an SEC filing, the company stated that its 2019 dividend would be “limited to approximately $250 million,” down from more than $400 million last year.

It also said that it may agree to new limitations under its credit agreement as to how much it is allowed to pay in dividends. The new restrictions would almost certainly lower the dividend further.

Prior to the Windstream bankruptcy, Uniti’s dividend had some risk to it. Now a dividend cut is a sure thing, and another one is quite likely.

Uniti is a good example of why companies need diverse revenue streams. When one company is responsible for the majority of another’s revenue and that first company runs into problems, the dividend of the second will almost surely be lowered.

Dividend Safety Rating: F

If you have a stock whose dividend safety you’d like me to look at, please leave the ticker symbol in the comments section.

Good investing,

Marc

The post Say Goodbye to This 25% Yield appeared first on Wealthy Retirement.

Income-hungry investors aren’t satisfied with receiving a paltry 2% dividend yield.

I don’t blame them! Earning 2% a year doesn’t begin to cover Starbucks’ (Nasdaq: SBUX) 10% price hike on a cup of coffee this year, let alone inflation.

That’s why many investors gravitate toward high-yield dividend stocks. For the sake of this argument, I’ll define high-yield stocks as those with yields greater than 4%.

I call these investors “yield grabbers.” They’re looking to cash a big dividend check right now.

Telecommunication and utility companies, master limited partnerships, and real estate investment trusts often have high yields. They also have slower dividend growth.

These companies and the products or services they provide are often natural monopolies. Some examples of natural monopolies are oil and gas pipelines, telephone lines, and internet connectivity. But often, government regulation or other factors limit profit and dividend growth.

But not all high-yield stocks make good investments. Some of them are downright dangerous.

We call these stocks “yield traps” because the companies are in trouble. They have high debt loads and declining sales, and they cannot afford to keep paying their lofty dividends for long.

Yield trap dividends are unsustainable and make horrible investments. If you invest in these stocks, you’re likely to lose money in two ways. The first is an income hit when the company cuts or eliminates its dividend to preserve cash. The second is a principal hit as the price of the stock continues to fall with the company’s declining business performance.

Yield grabbers must be experts at spotting and steering clear of yield traps if they want to build a lasting dividend income stream.

But avoiding yield traps doesn’t guarantee that yield grabbers will have enough to get by in the future.

While higher income today is great, it’s also important to have much higher income tomorrow. Unfortunately, most high-yielding stocks don’t fit that bill.

Typically, high-yielding stocks have slower distribution growth. They raise their dividends just a few percentage points each year. Some high-yield stocks haven’t raised their dividends in years (if ever).

Yield grabbers usually dismiss low-yielding stocks. They often won’t invest in a dividend stock with a yield below 2.5% or 3%.

It’s understandable in some cases.

Low-yielding stocks don’t generate enough income right now for yield grabbers. If you’re in or near retirement and are depending on dividends to pay your everyday bills, a paltry 1% to 2% yield doesn’t cut it.

But here’s the good thing about some lower-yielding stocks…

They typically grow their dividends at a much faster pace than their high-yield counterparts. Some lower-yielding stocks even double their dividends every single year! This is especially true of new dividend payers.

That’s why growth groupies love them.

You can blame it on the law of small numbers. If the dividend is small to begin with, even a tiny increase will be a big percentage gain.

Let me show you how it works…

A $0.05 raise on a $0.05 dividend means that the company increased its payout by 100%. That doubles your yield on your cost basis if the number of shares you own stays the same.

(As a refresher, yield on cost is calculated by dividing the current annual dividend by the price you paid for the stock.)

Higher-yielding stocks, on the other hand, often have larger dividends in terms of dollar amounts.

That same $0.05 bump on a $1 dividend means that the company increased its payout by just 5%. In this case, you get a lot less bang for your invested bucks and may actually lose spendable dividend income as inflation rises.

That’s why Chief Income Strategist Marc Lichtenfeld developed his 10-11-12 System. He believes that investors should benefit from high initial yields and dividend growth.

In his book Get Rich with Dividends, Marc introduces his system designed to generate 12% annual returns with an 11% yield over a 10-year period.

With returns like that, you’ll triple your money in 10 years.

That should be more than enough to make yield grabbers and growth groupies happy.

When it comes to dividend investing, you don’t have to choose between the two most profitable strategies. You can have both!

Good investing,

Kristin

The post Demand the Best of Both Worlds appeared first on Wealthy Retirement.