8 Safe Dividend Stocks With Generous Payouts

If only picking dividend stocks were as simple as choosing the ones with the largest payouts. Unfortunately, it’s far more complicated than that, especially because the stocks with the highest yields are often the most troubled.

Value Line has provided investment research and advice for more than 90 years, and it can even help income-focused investors pick dividend winners.

Senior analyst Kathleen Uckert recently hosted a webinar detailing how the firm selects dividend stocks. There are four steps: It seeks stocks that are safer than average, financially stronger than average, and that can work over the coming 12 months, which makes them safe, solid, and timely. After that, it screens out stocks with below-average dividend yields.

Value Line just added energy pipeline company Enterprise Products Partners to its Dividend, Income, and Growth portfolio. It yields an impressive 6.4%.

Value Line doesn’t give away all of its secrets. It doesn’t disclose exactly what makes a company low-risk, financially strong, and about to pop. Still, it’s possible to construct a stock screen using its selection principles.

We looked at the Russell 1000 index to pick other potential dividend-paying winners. There are many measures of safety and risk, including high profit margins or low earnings volatility, but we went with coverage ratios—stocks with above-average payout ratios of either net income or free cash flow. For financial strength, we looked at the ratio of debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda, and kept the ones that were lower than average. For timeliness, we used Wall Street ratings. Analysts are the ones researching and recommending stocks, so a plethora of Buy ratings is a vote of confidence.

The screen yielded eight stocks for investors to consider: advertising firm Omnicom, luxury-goods seller Tapestry, food-product company Ingredion, oil-service firms SLB and Halliburton, drug-development services provider Royalty Pharma, insurer MetLife, and Popular, a bank.

Over the past 12 months, those eight paid out an average of about 25% of net income or free cash flow, compared with an index average of about 40%. Debt to Ebitda averages about two times, compared with an average of about 2.8 times. Overall, 75% of the analysts covering the stocks rate them Buy, above the 56% average. Finally, the average yield is about 2.7%, compared with an average of 2.3% for dividend payers in the index.

As always, a stock screen from Barron’s or Value Line is only a start, a way to narrow down the investible universe to a manageable level. After the screen comes the hard work of understanding industries, companies, management teams, and the state of the overall economy.

As for the broad economic setup, things look OK. While inflation data remain mixed, Value Line still expects interest rates to come down, easing pressure on companies to refinance debt and generate free cash flow.

Lower rates should help dividend growth, but higher rates haven’t hurt as much as investors expected. “Concerns that higher interest rates might cause significant strain on the global economy have so far been misplaced,” said Jane Shoemake, client portfolio manager on the Global Equity Income team at Janus Henderson, in her firm’s third-quarter dividend review. Companies have been able to refinance debts, and banks are well capitalized.

Janus Henderson expects global dividend payments to reach an impressive $1.73 trillion in 2024, up 6.4% year over year on an underlying basis—and they look solid heading into 2025.

Dividend investing may not be simple, but it certainly can be profitable. B

Write to Al Root at [email protected]