A High-Yielding Trio

04/17/2017 2:50 am EST

Focus: STOCKS

Bob Ciura

Contributing Editor, Wyatt Investment Research

The average dividend yield of the S&P 500 Index is only 2%, but there are many highly profitable companies paying 5% dividend yields or more, observes Bob Ciura, editor of Wyatt Research's Daily Profit.

The following three stocks have high dividend yields more than double the average S&P 500 stock, with enough cash flow to support their generous dividend payouts.

Ford Motor (F) has been hit by fears that the record auto sales in the U.S. are about to come to a screeching halt. Indeed, rising interest rates and higher gas prices are likely to put a dent in Ford’s sales this year.

While Ford expects lower profit in 2017, it still projects more than $9 billion of pre-tax profit this year. That will be more than enough to fund its growth investments, service its debt and pay its dividend.

Speaking of the dividend, Ford stock yields 5.2%. And, the company has committed to paying a special dividend each year, if its fundamentals remain healthy enough to do so.

Seagate Technology (STX) is a very rare stock, as it is a technology company with a 5.6% dividend yield. This is virtually unheard of in the tech sector.

Seagate is being hit by the slowdown in the personal computer industry, which has resulted in a decline in demand for hard disk drives.

In response, Seagate is building up its cloud business, to capitalize on growth in software. Its turnaround is gaining traction: Seagate’s adjusted EPS increased nearly 70% last quarter.

As its cash flow improves thanks to its fundamental turnaround, its dividend payments could grow in 2018 and beyond, making it attractive among dividend stocks.

L Brands (LB), parent of the Victoria’s Secret and Bath & Body Works brands, is a poster child for the devastation rippling through the retail industry right now.

But while the current landscape is frightening, it’s not all bad news, as its well-known brands maintain leadership positions in their industry.

And, Victoria’s Secret could be about to take off in China, thanks to the recent opening of L Brands’ first full assortment Victoria's Secret store in the nation. The company is also busily remodeling its U.S. locations.

While this investment is likely to depress earnings this year, L Brands still expects EPS of at least $3 per share. This is more than enough to cover its dividend, and the company’s investment is likely to pave the way for better growth in the future.

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