Recently, it has become a trend in the stock market that whenever it shows promising signs of an upward movement, something or the other disrupts the precarious balance and causes a chain reaction with all the stocks tumbling down like a house of cards. Experienced stock investors have learned never to put all their eggs in the same basket, and have made it a rule of thumb to make simultaneous investments in different stock companies.
Here, I review five companies that, in my view, will continue to pay dividends in the year 2012. My assessment is based on margins, the dividend rate, the earnings outlook and the current payout ratio. Use my analysis as a starting point for more research before investing in these stocks.
Nokia (NOK)
After being on the forefront in the international smart phone manufacturing market for years, exceptional contributions from Apple (AAPL), with the iPhone 5 just around the corner, Sony (SNE), acquiring remaining shares held by Ericsson, and Google's (GOOG) Android blitzkrieg in the mobile market have ousted the king from its throne as the world leader in smart phone technology.
Nevertheless, although Nokia has learned its lesson the hard way, it seems to have learned it just in time. An innovative range of products like the new Windows 8 powered Lumia series has ensured that Nokia starts this year on the right footing.
Financially, the company still stands strong with a current market capitalization of around $22.32 billion, an income exceeding $834.54 million, and a competitive moat of C+. For the last 52 weeks, its share price has fluctuated between $4.82 and $11.75 but it has finally come to settle down at $6 per share. It has a 5.48% return on equity and a profit margin of almost 3%. With a yield of approximately 7.50% and a high dividend payout ratio of nearly 110.0%, Nokia is expected to continue paying high dividends to its investors.
Bank of America (BAC)
In the stock market there seems to be a general consensus that Bank of America and Citigroup (C) are on the brink of implosion. Stock investors have not had trouble finding reasons for staying away from Bank of America in particular: bad publicity, suicidal loan grants, public ignominy, lawsuits and consequent analysts' downgrades -- you name it. What more could the behemoth have wished for? However, stock investors should not forget that Bank of America's overall recorded assets are worth approximately $2.274 trillion. It has a market capitalization of around $67 billion with a price of nearly $6.61 per share, which has allowed it to maintain a wide competitive moat in the market. Bank of America stock has an annualized dividend of nearly $0.04 with a dividend yield of almost 0.61%.
Although the price per share has fluctuated between $15.31 and $4.92 for the last 52 weeks, it has (as of late) settled around $6.60. Interestingly, with a Dividend payout ratio of 0.04 and earnings per share of -0.37, Bank of America has a payout ratio of -33%, which is not a fair reflection of its stock performance. The company has started the New Year with an upbeat spirit, recuperating with some healthy upward movement on the charts. It is highly improbable that Bank of America will make a surprise dividend cut unless there is some bad news on the economic front.
Annaly (NLY)
NLY is an REIT (Real Estate Investment Trust) and has huge investments in mostly federally sponsored mortgage securities. Recently, Annaly has shown promising signs with a steady movement upward in the stock as compared to some of its leading competitors, MFA Mortgage Investments (MFA) and Capstead Mortgage (CMO). It currently has a market capitalization just shy of $16 billion. The current share price is around $16.40, and the company has maintained a low-high range of $14.05 to $18.79 over the last 52 weeks.
Large-scale borrowing to finance the purchase of securities has meant that Annaly will be getting back lower profits - something that had forced Annaly to make surprise dividend cuts in the previous year. This ever-changing interest rate is the most significant determinant in Annaly's profitability. However, the current market setting has been favorable for the company, with decreased interest rates leading to considerably larger profits. Annaly's dividend yield on stock is around 13.9% with a payout ratio of 147.29%. This means that with a larger portion of the profit disbursed to investors as dividends, Annaly is ranked as one of the better payers of dividend in the stock market. It is therefore seemingly unlikely that the company will introduce dividend cuts in the first half of the year.
Alcoa Inc. (AA)
Alcoa is the largest producer of aluminum in the U.S., with operations in 31 countries around the globe. The company did not fare well overall in the previous year, especially in the last quarter, when it reported losses, after maintaining a positive streak of 9 quarters. Alcoa recorded losses exceeding $193 million as a result of continued operations. However, if we take the entire year of 2011 into context, Alcoa registered steady revenues of around $614 million from global operations which are roughly twice the numbers seen in the previous year.
The major deciding factors that led to a disappointing final quarter of what was such a good start were increasing prices of transportation and oil. Nevertheless, we cannot ignore the fact that Alcoa has performed well in the last 9 out of 10 quarters. The universal demand for aluminum is expected to be steady this year, and Alcoa is all set on a track to recovery. Demand in China has seen an increase of 17%. Alcoa currently has a market capitalization of approximately $10.5 billion with estimated annual revenues exceeding $24.61 billion.
At a current share price of around $9.80, it has earnings of 0.95 per share. Alcoa has a payout ratio of 22% with a 5-year dividend yield touching 2.20% and a dividend rate of 0.03. Although there has been a steady decline in the demand for Aluminum in the European markets (which accounted for 24% of revenues in 2011), demand around the globe has seen a rise of 12%, which is enough to put the global giant on the track to recovery. Expert forecasts for the first quarter therefore suggest that Alcoa is unlikely to introduce any dividend cuts.
Chesapeake Energy Corp. (CHK)
Chesapeake is a leading producer of oil and natural gas in the U.S. It has huge investments in more than 46,000 active natural gas and oil wells that produce nearly 3 billion cubic feet of natural gas. After running a loss in the previous year, the company enjoyed a good run in 2010, when its net income soared to nearly $1.774 billion, with total revenues adding up to about $9.366 billion. In 2011, Chesapeake Energy has seen its production of oil and natural gas increase by 56% and 11% respectively. By the end of the fourth quarter of 2011, the company declared dividends of around 0.0875 per share for the last quarter. Its total revenue for the 3rd quarter of 2011 was almost $3.97 billion, which is substantially higher than previous year's $258 billion.
Chesapeake Energy has a total market capitalization of approximately $13.69 billion and a payout ratio of nearly 17.00%. The price to earnings ratio is stable at around -26.17% and adjusted earnings per share are about 0.72. Chesapeake Energy has registered a yield of nearly 8.6% in the last quarter of 2011 that, with a dividend yield of 1.50%, shows promising signs for investors in the first quarter of 2012. The company is therefore unlikely to make dividend cuts in the first quarter of 2012 and will go ahead with its plans to pay dividends to investors on 31 Jan. 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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