Which shares are the best dividend payers in the USA?


Which shares are the best dividend payers in the USA?

Published Date: 2018-02-15 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Which shares are the best dividend payers in the USA?

UPS - Dividend Paying share analysed

I would like to take a quick look at UPS share and explain why I am not adding to my holdings at this moment.

I currently hold 1.9% of my portfolio in UPS

This share illustrates the wisdom of limiting the size of any one holding to a maximum of 5% of your portfolio

UPS PE ratio 18.95 Normal PE ratio 21 Indicating the stock is slightly undervalued

Credit rating A+

Dividend 3.42% Grown for 8 consecutive years Apart from not increasing the dividend for one year in 2008 /9 the dividend has grown for more than 20 odd years.

Debt to capital is high at 97%

All these metrics (except debt) are signs of a healthy dividend payer.

One of UPS's largest clients Amazon has announced that they will begin their own delivery service in certain cities in the US. As a result of this UPS's share price dropped in the region of 4% last week

This drop would typically trigger a buy reaction. However, UPS's profits could be seriously affected by Amazon's plans.

Based on earnings per share of $5.61 and dividend of $3.64 the current dividend may not be sustainable.

Because of the high debt UPS may struggle to get additional funding for expansion. Therefore, I will wait to see what UPS's management have to say on how they will counteract this loss in revenues in an already stable market.

I will also wait to see what the analysts have to say about their forecast on UPS's future results before I decide to increase my holdings of this well priced dividend payer.

I was asked the following question recently: Which shares are the best dividend payers in the USA?

This is a complex question to answer.

First let me start out with the following facts:

There are some 800 listed companies that have paid increasing dividends for more than 5 years in a row

Some industries or sectors produce better dividend payers than others

The best dividend payers also depend on your own criteria:

  • Least volatile share price
  • High dividend %
  • Security of the dividend payment (Low pay-out ratio)
  • Annual rate of increase of the dividend payment and or share price. Etc.

Industry Sectors that lend themselves to good dividend payers are:

  • Banking
  • Consumer products
  • Industrial Equipment
  • Oil & Gas
  • Utility's Gas, Electric, water
  • REIT's

REIT's explained:

  • One of the business models that are available on the US stock market where in my opinion good dividend payers can be found are REIT's - Real Estate Investment Trust
  • A REIT allows an individual to invest in property without all the negatives of owning property directly. The main advantages are:
  • They are liquid investments Shares can be purchase and sold at will
  • You do not have to concern yourself with getting tenants or maintaining the property
  • There is diversity in your investment. REIT's typically own thousands of properties
  • REITS normally invest in a particular property sector such as shopping malls, office blocks, warehouses, Data Centres, nursing facilities.

A company must meet the following requirements to be qualified as a REIT:

  • Invest at least 75% of its total assets in real estate, cash or U.S. Treasuries
  • Receive at minimum 75% of its gross income from rents from real property, interest on mortgages financing real property or from sales of real estate
  • Pay a minimum of 90% percent of its taxable income in the form of shareholder dividends each year
  • Be an entity that is taxable as a corporation
  • Be managed by a board of directors or trustees
  • Have a minimum of 100 shareholders
  • Have no more than 50% of its shares held by five or fewer individuals

REIT's and tax. If I am not mistaken Dividends from REIT's are treated as rental income by SARS therefore may attract higher taxes than normal dividends

The best dividend payers are not the highest dividend payers.

Companies that have a high dividend pay-out >7% may not be re-investing sufficient funds back into the company for growth, building up cash reserves, reducing borrowings. If a company is facing financial headwinds their share price may drop significantly resulting in a high dividend % until it announces a dividend cut.

Another good way of assessing a good dividend payer is to see if the company managed to increase its dividend through the 2008 / 2009 crash. This is a good indicator of the robustness of the company to survive tough times and indicates high quality of management.

A good place to find dividend payers is in the list of shares held by the Proshares dividend Aristocrats ETF - NOBL

This ETF focuses exclusively on companies in the S&P 500 that have grown dividends for at least 25 consecutive years

The fact sheets, holdings and detailed information, can be found at this link.


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research.

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