4 Industry Leaders With Ultra-High Dividends

Billy Duberstein, The Motley Fool

With long-term bond yields at historically low levels, conservative investors may be looking to high-dividend stocks in order to get the returns they seek. Investors that love their dividends need to be wary though because a dividend that's too high could be a potential sign of a stock in danger. However, after the recent market volatility, some opportunities have arisen, even in relatively safe, name-brand market leaders that have stood the test of time.

Though strong brands can occasionally fall on hard times (General Electric or Kraft Heinz are the latest examples), time-tested, market-leading brands usually have a better shot of making their payouts. For those looking for high dividends in a low-interest world, here are four market leaders that not only are household names but also sport dividend yields north of 4% and look to be safe bets to make good on those payments long term.

A man in a suit sits at a desk and poses with eyes closed and arms up as cash rains down on him.

These four popular brands pay investors big dividends. Image source: Getty Images.

1. AT&T

Dividend Yield: 6%

AT&T (NYSE: T) is currently the second-largest U.S. mobile telecom service provider next to rival Verizon. Both AT&T and Verizon have large recurring subscriber bases and are currently investing heavily in the next-generation wireless communications: 5G.

To kick off the effort, AT&T won a big contract to build out FirstNet in 2017, a nationwide high-speed network for first responders. That gives the company a leg up on building out the complex and expensive 5G infrastructure that will one day power the tech applications of the 2020s.

AT&T is also looking to the future of media after its 2018 acquisitions of Time Warner and AppNexus. With Time Warner, AT&T is reforming the media giant into an all-in-one streaming service. The company is set to unveil its HBO Max streaming platform in 2020, which should be pricing its monthly service around $16 or $17. Though the streaming category is somewhat crowded, HBO has a very strong brand, and Warner Bros. has a huge library of content with the potential to be a part of any household's streaming lineup. That potential recurring revenue will be useful to AT&T's bottom line.

And though AT&T's whopping $158 billion long-term debt load left over from these past acquisitions scares some, the company is still generating excess cash flow to pay that down, and management expects to get to a reasonable 2.5 times debt-to-EBTIDA ratio by the end of the year.

AT&T's current lofty 6% dividend payout should thus be safe while investors wait for these innovations to take hold.

2. Wells Fargo

Dividend Yield: 4.6%

When people refer to "the big 4" U.S. banks, they're referring to JPMorgan, Bank of America, Citigroup, and Wells Fargo (NYSE: WFC). Of these four, only one sports a dividend yield over 4%, and that's Wells. Since it just raised its payout last quarter, Wells Fargo will yield shareholders a whopping 4.6% going forward at today's share price.

C Dividend Yield (TTM) Chart

C Dividend Yield (TTM) data by YCharts.

It's not hard to understand why Wells' yield is so high. Pessimism has weighed on Wells' share price since September of 2016 when widespread customer abuse was revealed, centered on employees opening millions of unauthorized accounts for customers who hadn't asked for them. Since then, even more abuses were uncovered, leading Wells Fargo to fire two CEOs and the Federal Reserve to put an asset cap on Wells until it cleans up its act.

While Wells may not be able to grow in the near term, it has taken the opportunity to upgrade the quality of its already-stellar loan book. The company's loan book had only 28 basis points of charge-offs last quarter, near all-time historic lows. Wells' Common Equity Tier 1 ratio also came in at 12%, giving the bank a big cushion should a recession hit the market. And since the market has given Wells' stock such a bargain-basement valuation of just nine times earnings, the company was even able to repurchase 9% of its shares over the past year, leading to a whopping 33% EPS growth, even while revenue was flat.

Once the asset cap is lifted and Wells finds a permanent CEO, the bank could be off and running again, and shareholders can receive its huge yield while they wait.

3. AMC Entertainment

Dividend yield: 7.4%

Though you may not recognize this brand at first, chances are you've been in an AMC Entertainment (NYSE: AMC) theater recently. AMC is the largest movie theater operator in the world, with a presence in many major U.S. cities. The company also has a big presence in Europe, as it acquired Odeon in Western Europe and Nordic Cinemas in Northern Europe back in 2016 and 2017.

An empty movie theater with popcorn sitting on one seat in the front row

Image source: Getty Images.

How else is AMC also the leading brand in movie theaters? Its AMC Stubs A-List subscription program boasts the highest subscriber count of any theater chain, crossing 900,000 members in its first year of operations, smashing management's initial target of 500,000. That led to AMC outperforming the industry box office attendance by 800 basis points last quarter.

Yet despite AMC's strong loyalty, the stock has plummeted in the past two years, which has caused the company's dividend yield to rise to 7.4%. That may seem crazy, but the market has a few valid concerns. One, AMC has a large debt load, at over five times its EBITDA (earnings before interest, taxes, debt, and amortization). Two, some believe that the rise of internet streaming will cause moviegoing to decline rapidly.

However, these fears may be overblown. On its recent conference call, AMC just revealed that it would lower its capital expenditures next year to just $300 million, down from the $415 million forecast for this year, and far below the $576 million spent in 2018. That's because the company's massive recliner renovation upgrade cycle is coming to an end. AMC should thus start paying down its debt fairly soon.

While streaming could be a bit of a threat, remember that 2018 was an all-time box-office record, and 2019 has a shot at exceeding it. So, if moviegoing is going the way of the dodo bird, it hasn't shown up in the data just yet.

4. Ford Motor

Dividend yield: 6.7%

One of the more hated names in the automobile sector is Ford Motor (NYSE: F), which currently trades at a forward P/E ratio of just 6.4 and sports a dividend yield of 6.7%. Ford has been subject to some of the same investor pessimism faced by all automakers not named Tesla. Concerns over both electrification, ride-hailing, and future autonomous vehicles have cast a cloud over the sector, pushing valuations of "traditional" car companies to bargain-basement territories.

Yet Ford is moving fast to boost its cash returns today while planning for tomorrow. The company is increasing production of new high-margin trucks and SUVs, which have been taking share from traditional sedans. The company's recent quarter was actually the best for U.S. pickup trucks since 2004. Ford is also rapidly restructuring problem areas, closing six European plants and discontinuing underperforming models in Europe as the continent has been a big drag on profits. These actions led to a boost in Ford's free cash flow in the recent quarter, even though revenue was flat.

But what about electric (EV) and autonomous (AV) vehicles? Well, Ford recently entered into a large alliance with Volkswagen (OTC: VWAGY) to take on these markets. The plan includes a target of a high-volume, zero-emission car by 2023, using Volkswagen's modular architecture that should drastically lower EV costs. Ford and Volkswagen have also jointly invested $3.6 billion in Argo AI, an autonomous driving start-up.

CEO Jim Hackett was installed at the helm in 2017 in order to aggressively adapt Ford's business to the future, and it certainly looks like he's moving fast. In fact, Hackett recently said Ford will replace 75% of its fleet with new models by 2020.

While there is considerable uncertainty as to how these future initiatives will turn out, investors are paid Ford's huge dividend while they wait for the company's restructuring to take hold and its new EV and AV plans to develop.


Billy Duberstein owns shares of AMC Entertainment Holdings, AT&T, Bank of America, and JPMorgan Chase. The Motley Fool owns shares of and recommends Tesla. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com