Interest rates may still be near the rock-bottom multi-year lows they hit early this year. But not all dividends have followed suit. Several stocks are still dishing out healthy payouts to investors in search of regular income. Here's a rundown of three great names boasting surprisingly high dividends right now.
The Williams Companies
Dividend yield: 7.4%
Like most other stocks in the energy business, shares of The Williams Companies (WMB +0.47%) were rocked along with oil and gas prices in early 2020 when the pandemic first took hold. And why not? An economic headwind's effect is rather indiscriminate, exacting a toll on all sorts of businesses.
The market may have misunderstood Williams' business model, however. This company owns (among other things) 30,000 miles worth of pipelines used to deliver natural gas across the U.S., collecting a fee for every cubic foot of it delivered from point A to point B. The sales prices agreed upon by the buyers and sellers of that gas don't really affect the need for such a service.
Image source: Getty Images.
One only has to look at the company's results from the second quarter of last year -- when the pandemic's fallout was most painful -- to see this. While natural gas prices plunged more than 30% between the end of 2019 and the May 2020 low, Williams' service revenue only slumped 3% during that quarter ending in June. Ditto for income. U.S. Energy Information Administration data says the country's natural gas consumption held surprisingly steady last year, down only 2% as of November.
Astute investors may be concerned about Williams' waning cash flow, and subsequently, its ability to fully fund the dividend. The numbers aren't quite what they seem though. The company booked an unusually high impairment charge of $938 million in the first quarter of last year, and reached a settlement agreement with Transco in Q3 at a cost of $284 million. Adding those one-time expenses back into the company's results brings 2020's income and cash flow (respectively) back to 2019's healthier levels. This math also reminds us the recurring-revenue nature of the pipeline business is one well-suited to support sustained dividend payments.
AT&T
Dividend yield: 7.2%
Yes, AT&T (T +1.21%) has problems. Paying its dividend isn't one of them.
Chief among its current headaches is its struggling satellite television brand DirecTV. The company lost another 617,000 cable customers last quarter, extending a long string of attrition. Production from its film and TV division Warner Media also remains stymied by the COVID-19 pandemic. These challenges continue to make for featured headlines.
However, AT&T is mostly a telecom company, and it's doing just fine on that front. Last quarter's wireless revenue grew 7.6% year over year to $20.1 billion -- around 44% of its total sales -- thanks to the addition of nearly 6 million total subscribers. There are now 80.8 million devices connected to AT&T's wireless network, up almost 5 million from the previous quarter's tally. All told, the telco company's operating earnings of $0.75 per share may have been down year over year, but that's still more than enough to cover the current quarterly dividend payout of $0.52 per share. Analysts are modeling renewed earnings growth going forward too, which will widen AT&T's payout cushion.
The liability DirecTV is to the company's income statement and balance sheet is also abating. AT&T booked a $15.5 billion charge linked to the shrinking value of 2015's $48 billion acquisition of the satellite cable platform, implying the oft-rumored (partial) sale of the business is near fruition. That will dial down the company's debt burden by around $18 billion, but more importantly, it will allow AT&T to move forward without the baggage that's working against the perceived value of the stock.
PPL Corporation
Dividend yield: 6%
Finally, most lists of dividend stocks to buy include at least one utility pick. This one is no exception. PPL Corporation (PPL +1.02%) is a standout within the sector with its industry-leading 6% yield. The curious part about that payout? PPL isn't exactly pushing the limits of what it can afford to pass along to shareholders. Its operating margins and overall profit margins are also well above those of its industry peers.
PPL provides power to more than 10 million people in the United States and the United Kingdom, although it's in the process of selling its U.K. business so it can focus solely on its U.S. operations. It's also adapting or an inevitable future. Last month it announced an expansion of previously made plans to build a solar power facility in Kentucky, and it's supported the proliferation of electric vehicles by building EV charging stations for years. Less visible -- but perhaps more important to shareholders -- is a planned shift away from fossil fuel electricity production to greener and cleaner sources. PPL is partnering with the Electric Power Research Institute and the Gas Technology Institute as part of a bigger plan to reduce 2010's levels of carbon emissions by 80% by 2050.
It remains to be seen what the company's fiscal result results will look like once its UK operations are sold off. That particular business is growing faster than most others. Take it out of the mix, and PPL could see its already-lackluster growth could slow to a crawl. Add in the fact that around two-thirds of its per share profits are already passed along to shareholders as dividends, and the utility company may not have a ton of dough to invest in future growth either. If you're ok with sacrificing above-average growth later for above-average yields now though, this is definitely a name worth a look.
