A large number of investors purchase stocks for their yields. People on fixed incomes often use dividend payments to cover basic living expenses. Other investors look at companies paying dividends as "safe havens". Their share prices may go down, but at least holders get a quarterly check. It is a good system until the firms with impressive yields become concerned that they are running low on cash.
24/7 Wall St. found a small number of large companies which are likely to keep their dividends at current levels even through a deep recession. These companies have tremendous amounts of cash on their balance sheets, little or no debt, and are in businesses which are almost certain to have strong margins even in tough economic periods.
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AT&T
AT&T (T) sells phones and telecom services. This is a sector that will always be with us. AT&T is now into the business of delivering video to people's homes and data to their cellphones. Both are likely to grow for years. In the final quarter of 2008, AT&T had net income of $2.4 billion on revenue of $31.1 billion. The company has free cash flow of $5.4 billion for the quarter and $13.3 billion for the year. For 2008, dividends paid totaled $9.5 billion, shares repurchased totaled 164.2 million for $6.1 billion. Put another way, AT&T is rolling in money. Investors can take the $1.64 dividend and 6.4% yield to the bank.
Eric Gay, AP
Halliburton
Halliburton (HAL) supplies services to the oil industry. That would seem, at first, to be a bad business to be in as crude prices fall. Fortunately for the company, while oil exploration has dropped quite a bit in North America, it is still a healthy business in part of the Middle East, South America, and a number of areas offshore where fields used to be too deep to reach. In the fourth quarter, HAL had operating income of $776 million on revenue of $4.9 billion. Management has said the 2009 sales will be a little soft, but not catastrophic. Halliburton has cash and receivables of almost $5 billion and payables and debt of $3.4 billion. The firm's dividend is $.36 a quarter which is a yield of 2%. Not a big return, but completely safe.
Donna McWilliam, AP
Johnson & Johnson
Johnson & Johnson (JNJ) had revenue of $63.7 billion last year. It made a net profit of $13 billion which was up 22% from 2007.Very few large operations have that level of net margin. The company has three main businesses: consumer, which sells soaps and toiletries, pharmaceuticals, and medical devices. While drug sales were off a bit last year, the other two lines of business improved. JNJ expects EPS this year to be about the same as last. The most recent balance sheet filed with the SEC shows JNJ with long-term debt of under $8.4 billion and cash and marketable securities of almost $15 billion. The company has a $1.80 dividend and 3.2% yield. Its payout is safe.
Cassandra Hubbart, AOL
PepsiCo
PepsiCo (PEP) pays out $1.70 which is a yield of 3.3%. There are a number of reasons that the dividend is safe. The most important may be that people will buy cheap soft drinks in almost any economy, whether it is good for their health or not. In its last reported quarter, Pepsi made $1.5 billion on sales of $11.2 billion. The firm's annual operating income of about $6 billion is almost equal to its long-term debt of $6.5 billion.
Darron Cummings, AP
Microsoft
Microsoft (MSFT) may not be the fast-growing company it was a decade ago, but its core software operations still have margins of over 70%. In the last quarter, Microsoft had operating income of almost $6 billion on revenue of $16.6 billion. The firm has almost $21 billion in cash and investments. It has no debt. Microsoft's dividend is $.52 and its yield is 3%.
Paul Sakuma, AP
McDonald's
McDonald's (MCD) has a business which is often described as recession-proof. Its dividend is as well. Last year, McDonald's comparable store sales rose almost 7%. When it reported its annual earnings it said it had returned "$5.8 billion to shareholders through shares repurchased and dividends paid, including a 33% increase in the quarterly cash dividend to $0.50 per share for the fourth quarter – bringing our current annual dividend rate to $2.00 per share." The company had revenue of $23.5 billion and net income of $4.3 billion. If anything, the shareholder return from MCD could go up this year.
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Costco
Costco (COST) is in the top tier of an awful industry. Retailing is falling apart, but a few firms like Wal-Mart are doing fairly well. Costco has a $.64 dividend and $1.4% yield. In the company's last reported quarter, which ended on November 23, Costco's sales were $16 billion, up 4% compared to the same quarter a year ago. Net income was $263 million. Even though very few consumers are shopping, in December the company produced sales of $7.4 billion down only 2% from the same period a year ago. Last week, Costco announced its quarterly dividend of $.16. The company has long-term debt of $2.2 billion and cash of $2.2 billion.
AP
Disney
Disney (DIS) has a $.35 dividend and modest 1.6% yield. Some of the company's units may suffer during the downturn. Traffic to its theme parks will almost certainly drop. Advertising on the ABC network is likely to drop. For Disney's fiscal year, which ended on September 27, the company's revenue rose 7% to $37.8 billion. Income from continuing operations dropped 5% to $.4.4 billion and free cash flow was almost $3.9 billion. Disney has over $11 billion in long-term debt and $3 billion in cash. That ratio is not as favorable as for some other companies on the list, but its free cash flow gives Disney a large buffer.
AP
Comcast
Comcast (CMCSA) has a good reason keep paying its dividend. Its founding family runs the company and still owns a large piece of the firm. Comcast pays a $.25 dividend for a 1.6% yield. The fortunes of the cable firm may be helped by the government's new stimulus package. Part of the current plan to improve broadband infrastructure is to give tax incentives to the companies that build out the new systems. According to BusinessWeek, "those most likely to benefit would be existing broadband providers such as AT&T (T), Verizon Communications (VZ), and Comcast (CMCSA), because they have the capital to make investments, and it costs less to extend their networks than it does to build new ones." Comcast hardly needs the help.
Matt Rourke, AP
