7 High Yield Dividend Stocks With Enough Earnings to Cover the Dividends (2024)

Looking for some interesting investment income? These seven high-yield dividend stocks have enough earnings projected for 2021 to cover the company’s likely dividends (with one exception). This ensures that there is a low likelihood the company will lower its dividend. And the one exception should see earnings to cover the dividend in 2022, and remains committed to continuing payouts. And that’s all important, since even the possibility of a dividend cut will drag down a stock once the market believes this is possible.

I also screened this list for two other criteria. First, the dividend yield has to be at least 5%, again, with earnings covering the dividend payment. This is also known as its dividend payout ratio.

Second, the company paying the dividend is not a fund or a partnership, run by some fund manager, etc. Typically corporations tend to maintain their dividend at a steady rate, whereas a fund will tend to make payments as a portion of income. In the latter case, the dividend can vary from year to year.

Here is the list of these high-yield dividend stocks:

• Ecopetrol SA (NYSE:EC)
• AT&T (NYSE:T)
• Fanhua (NASDAQ:FANH)
• ExxonMobil (NYSE:XOM)
• BHP (NYSE:BHP)
• WP Carey (NYSE:WPC)
• GlaxoSmithKline (NYSE:GSK)

Let’s dive in and look at these stocks.

High-Yield Dividend Stocks: Ecopetrol SA (EC)

Market Cap: $26 billion
Dividend Yield: 7%

Ecopetrol is a Columbian oil and gas exploration and production company. It has a strategic alliance with Occidental Petroleum (NYSE:OXY).

Ecopetrol paid a dividend last year of 89 cents per share and is expected to earn $1.24 this year and $1.39 next year. That means that its dividend stays unchanged, its coverage ratio is 72% this year. This provides a good deal of security for investors that the dividend can continue at this level.

The company’s latest slide presentation (page 14) shows that it has enough operating cash flow to pay its dividend in the past quarter. Moreover, table 4 of the company’s quarterly report for Q4 shows that its dividend cost 3.5 trillion Columbian Pesos (COP) but operating cash flow was 5.3 trillion COP. In other words, the company can continue to afford to pay its dividend.

Fanhua (FANH)

Market Cap: $810 million
Dividend Yield: 6.8%

Fanhua is a NASDAQ-listed Chinese insurance agency and claims adjustment company, based in Guangzhou. In insurance, it sells property and casualty policies, as well as life and health insurance and annuities.

The company announced a quarterly dividend of 25 cents which goes ex-dividend on March 30. This implies an annual dividend of $1 and gives FANH stock a 6.8% yield. Earnings this year are forecast to be $1.36 and $1.62 next year, according to Seeking Alpha. This gives the company a dividend coverage ratio for this year of 73.5%.

However, to be fair, the company just reported its earnings for Q4 with just 20 cents per ADR. This does not cover the 25 cents per ADR quarterly dividend payment. Nevertheless, on an annual basis, analysts expect the earnings to be well covered.

Nevertheless, this is a risky foreign stock. You should be careful with it. Other than its listing on NASDAQ, the company’s business is not subject to U.S. laws and regulations.

AT&T (T)

Market Cap: $216 billion
Dividend Yield: 6.9%

AT&T is forecast to make $3.15 per share this year and its annual dividend is set at $2.08. That gives the telecom company stock an annual dividend coverage of 66%. John Stankey, the CEO, said on the recent Q4 conference call said that AT&T is committed to sustaining the dividend. He also indicated that the company had a “comfortable” total dividend payout ratio.

For example, right after indicating that it plans to use free cash flow to pay down debt, he said this:

“We’re committed to sustaining our dividend at current levels and we’ll give top priority to debt reduction at this time.”

In other words, I guess the company can have its cake and eat it too. It can pay down debt all while maintaining the dividend. So far the market is somewhat skeptical. This is why T stock has a high 6.9% dividend yield. Over time, as the market becomes more comfortable with its payout ratio, the dividend yield will fall as T stock rises.

ExxonMobil (XOM)

Market Cap: $243 billion
Dividend Yield: 6.2%

Right now, XOM stock has an attractive dividend yield of 6.2% although it has a higher than 100% payout ratio for this year. Its dividend is set at $3.48 annually, but this year, earnings per share at the oil and gas company are forecast to be just $2.73.

However, next year, analysts expect the massive energy producer will make $3.70 per share. That gives it a 94% payout ratio based on 2022 expected earnings.

On a cash flow basis, management indicated during its latest conference call that its cash flow from operations will cover the dividend this year. Moreover, management has made it abundantly clear that they intend to maintain the dividend. In fact, management talked about a “strong dividend” 10 different times during the call, including these statements, such as this:

“Maintain our capital allocation priorities, including paying a strong dividend and maintaining a fortified balance sheet…”

At this point, with oil prices having recovered and earnings looking like they will turn around next year, I don’t see management cutting the dividend. They have really gone out of their way to make it clear that they intend to maintain it.

This gives XOM stock a high yield now, but I suspect that by next year the stock will be higher, lowering the dividend yield.

BHP (BHP)

Market Cap: $171 billion
Dividend Yield: 5.8%

BHP is a large Australian iron ore and copper mining company with interests all over the world. Earnings this year are forecast to be high at $5.14 per share, which more than covers its annual $4.04 dividend per share, assuming its second 2021 dividend matches the one paid this month. This gives it a payout ratio of 78.6%.

The company is highly dependent on its exports to China. But China recently has been cutting back. Recent reports are that Chinese companies are cutting back their steel production. This is partly due to the Chinese authorities cracking down due to environmental concerns.

Nevertheless, commodity prices, especially copper, are at 10-year highs. That should continue to buoy the company’s revenue prospects. This is based on prospects of economies around the world returning to normal economic activity. Look for BHP stock to do well this year.

WP Carey (WPC)

Market Cap: $12.6 billion
Dividend Yield: 5.9%

WP Carey is a large REIT (real estate investment trust) that invests in single-tenant industrial, warehouse, office, retail, and self-storage properties. It tends to negotiate deals with long-term net leases with built-in rent escalators. This makes its income fairly stable over the long-term.

Analysts expect the company will have a payout ratio of about 92%. This is based on Funds from Operations (FFO) in 2021 of $4.56 vs. its annual dividend of $4.19 per share.

FFO is a sort of cash flow number akin to EBITDA (earnings before interest, taxes, depreciation, and amortization) in the real estate investment trust business. Everything works on cash flow in the real estate industry, especially since assets are often acquired using leverage.

FFO cash flow next year is forecast to be even higher, which will strengthen its payout ratio. Expect to see the 5.9% dividend yield to fall as WPC stock rises with higher FFO cash flow next year.

GlaxoSmithKline (GSK)

Market Cap: $89 billion
Dividend Yield: 5.8%

Glaxo is a U.K./U.S. drug company that has pays an annual $2.11 dividend but has earnings forecast to hit $2.09 this year. However, next year analysts expect EPS to reach $2.32, giving the stock a payout ratio of 91%.

However, keep in mind that the company is planning on spinning off to shareholders its over-the-counter consumer health division. This will be a separate new public company whose shares will be distributed to shareholders.

The point is that this will affect the maintenance of the dividend. Analysts have pointed out that this will likely result in a lower payout ratio – between the two sets of shares that investors will own. This could be one reason why the dividend yield is fairly high now.

Some of these high-yield dividend stocks are riskier than others. But as a group, they should provide a decent yield and return for most patient investors, willing to average down their costs.

On the date of publication, Mark R. Hake did not hold any long or short position in any security mentioned in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guidewhich you can reviewhere.