Newsletter Subject

Smart Money Monday - How to Pick Dividend-Payers, Plus My Favorite One to Buy Now

From

mauldineconomics.com

Email Address

subscribers@mauldineconomics.com

Sent On

Mon, Apr 18, 2022 02:10 PM

Email Preheader Text

It has one of the highest yields in the S&P 500 . Now, let’s run through how to pick the best d

It has one of the highest yields in the S&P 500 [Read this article on our website.]( [Smart Money Monday]  Apr 18, 2022 How to Pick Dividend-Payers, Plus My Favorite One to Buy Now Thompson’s Note: Inflation has reached a 40-year high, the war in Europe is dragging on, lockdowns in China are pinching already stressed supply chains… Regular readers know I’m not a macro guy—I’m a bottoms-up stock picker. But I still follow macro trends, and I can see the market stressors piling up. Which means SIC 2022 couldn’t be coming at a better time. We have an unparalleled roster of top-notch strategists lined up to guide you through the turmoil. And I’ll be there sharing more about how I find profitable opportunities in any environment, as well as answering your questions on the final day of the event. If you haven’t reserved your Virtual Pass to the SIC 2022 yet, take a moment and [click here](. Now, let’s run through how to pick the best dividend-paying stocks, and look at my favorite one to buy now… *** Ask income investors what they’re looking for, and one word is bound to come up… Predictability. Income investors want to know the money will keep showing up. We all know stock prices fluctuate up and down. After all, nothing goes up in a straight line. But for strong dividend-paying companies, one thing remains constant: the cash they pay shareholders in the form of dividends. This might sound obvious, but a company can only continue to pay dividends if it generates earnings. And it can only grow its dividend if it grows those earnings. With that in mind, here’s what I look for in a dividend-paying stock… - First, look at cash flow, not earnings. Traditional financial wisdom suggests using the “dividend coverage ratio” to evaluate if a company can continue to pay its dividends. It’s a simple ratio: earnings per share/dividends per share. Meaning a company earning $1/share that pays a $0.25/share dividend can cover its dividend four times over. It’s a reasonable metric. However, those earnings come from the company’s income statement. And they often don’t accurately reflect the cash moving in and out of the business. So, I look at something different. When I’m evaluating a company’s dividend, I open its “statement of cash flows.” Then I’ll pinpoint its free cash flow (operating cash flow, less capital expenditures). And then I’ll scroll down a bit on the same statement and find “dividends to shareholders.” - Rule of thumb: If free cash flow is greater than dividends to shareholders, you’re in good shape. Consumer goods juggernaut Proctor & Gamble (PG) is a solid example here. P&G has generated a significant amount of cash flow after dividends over the past 5 years. Free cash flow has grown from $9 billion to $15 billion, while the dividend has grown from $7 billion to $8.2 billion. Meaning it’s had plenty of cash to cover its dividend. -  The second factor I look at is the strength of the balance sheet. If free cash flow is less than the dividend, the company is getting the money to pay that dividend somewhere . And most of the time, it’s from borrowing money. Take oil major Exxon (XOM), for example. In 2020, it got itself into a precarious situation. Its free cash flow couldn’t cover its dividend to shareholders. The company managed to preserve the dividend, but not without taking on more debt. Its total debt rose 44% from $46 billion to $67 billion that year. That is not a good sign. A strong dividend payer can maintain its financial strength while paying out its dividends from free cash flow. So, check the balance sheet to see if the company is increasing debt to cover its dividend. - The third factor I consider is the quality of the business model. A shrinking company is going to have trouble maintaining its dividend. Take a company like Meredith Corp. (MDP), which sells print magazines and owns TV stations. Meredith was a strong dividend payer for years. But those are tricky markets—print magazines are dying off, and consumers are cutting the cord on cable TV. COVID exacerbated Meredith’s problems, and it wound up cutting its dividend during the pandemic. - My favorite dividend-paying stock checks all three boxes… In January, I shared three of my top picks for the year. One of them was AT&T (T). My editor begged me not to write about it [when I first recommended it]( in Smart Money Monday . And I got the same feedback this go-around. “It’s too big, Thompson. You write about small caps.” Sure, it’s not like the high-growth small caps I recommend in High Conviction Investor , but I still like AT&T a lot here. As you may have heard, AT&T just finalized the spinoff of its Warner Media business and merged it with Discovery Communications. AT&T shareholders received 24 shares of the new company, Warner Bros. Discovery (WBD), for every 100 shares of AT&T they owned. AT&T’s dividend is in great shape. The new company has a $1.11 per share dividend. On today’s price, that implies a 5.8% yield—one of the highest yields in the S&P 500. The company has set a policy of paying out 40‒45% of free cash flow as a dividend. That’s a very healthy coverage ratio. It also gives AT&T flexibility to pay down debt if it chooses. Historically, AT&T’s dividend has equaled 50‒65% of free cash flow. So, this new policy is much more conservative. Over time, it can return to slowly growing the dividend alongside earnings. And from an industry perspective, cell phones aren’t going anywhere, so we’re in good shape there. AT&T checks all the boxes for a strong dividend-paying stock. Consider buying shares if you haven’t already. Thanks for reading, [Thompson Clark] —Thompson Clark Editor, Smart Money Monday Suggested Reading... [Other Possibilities](  [90% of equity returns over the last 50 years have come from this investing strategy...]( [Thompson Clark]Thompson Clark is a small-cap expert and value-focused investor with nearly a decade of experience in financial publishing. Thompson graduated from the Goizueta Business School at Emory University in 2010 with a focus in finance and accounting. He lives in North Carolina. He is the editor of Mauldin Economics’ free research service, [Smart Money Monday]( . Don't let friends miss this timely insight— share it with your network now. [Facebook]( [Twitter]( [Email]( Share Your Thoughts on This Article [Post a Comment]( [Read important disclosures here.]( YOUR USE OF THESE MATERIALS IS SUBJECT TO THE TERMS OF THESE DISCLOSURES.  This email was sent as part of your subscription to Smart Money Monday . [To update your email preferences click here.]( Mauldin Economics, LLC | [PO Box 192495 | Dallas, TX 75219](#) Copyright © 2022 Mauldin Economics. All Rights Reserved.

Marketing emails from mauldineconomics.com

View More
Sent On

02/12/2024

Sent On

08/11/2024

Sent On

01/10/2024

Sent On

27/09/2024

Sent On

20/09/2024

Sent On

13/09/2024

Email Content Statistics

Subscribe Now

Subject Line Length

Data shows that subject lines with 6 to 10 words generated 21 percent higher open rate.

Subscribe Now

Average in this category

Subscribe Now

Number of Words

The more words in the content, the more time the user will need to spend reading. Get straight to the point with catchy short phrases and interesting photos and graphics.

Subscribe Now

Average in this category

Subscribe Now

Number of Images

More images or large images might cause the email to load slower. Aim for a balance of words and images.

Subscribe Now

Average in this category

Subscribe Now

Time to Read

Longer reading time requires more attention and patience from users. Aim for short phrases and catchy keywords.

Subscribe Now

Average in this category

Subscribe Now

Predicted open rate

Subscribe Now

Spam Score

Spam score is determined by a large number of checks performed on the content of the email. For the best delivery results, it is advised to lower your spam score as much as possible.

Subscribe Now

Flesch reading score

Flesch reading score measures how complex a text is. The lower the score, the more difficult the text is to read. The Flesch readability score uses the average length of your sentences (measured by the number of words) and the average number of syllables per word in an equation to calculate the reading ease. Text with a very high Flesch reading ease score (about 100) is straightforward and easy to read, with short sentences and no words of more than two syllables. Usually, a reading ease score of 60-70 is considered acceptable/normal for web copy.

Subscribe Now

Technologies

What powers this email? Every email we receive is parsed to determine the sending ESP and any additional email technologies used.

Subscribe Now

Email Size (not include images)

Font Used

No. Font Name
Subscribe Now

Copyright © 2019–2025 SimilarMail.