Investment Thesis

Have you ever invested in a high dividend yield company, attracted by its high yield, yet the result was a dividend reduction and poor stock performance?

When selecting such high dividend yield companies, it is crucial to evaluate several factors to ensure the dividend is sustainable. A sustainable dividend is a key factor when gauging a company’s ability to constantly raise its dividend over time.

To identify if a dividend is sustainable, factors such as the Payout Ratio, EPS Growth Rate, 5-Year Dividend Growth Rate, the Consecutive Years of Dividend Growth, and the companies’ competitive advantages and balance sheet should be evaluated carefully. These metrics can help us to increase the likelihood that the selected companies we invest in pay sustainable dividends. In turn, this allows us to constantly increase our wealth over the long term and with a reduced risk level.

When taking a closer look at your investment portfolio, do you think that the majority of the companies there pay sustainable dividends?

In this article, I will present you with 10 high dividend yield companies which I currently consider to be attractive choices for investors. This is due to their competitive position within their industries, financial robustness, relatively low Valuation, and their ability to increase the dividend over the long term.

Before I present you with the 10 selected high dividend yield companies to consider investing in during September 2024, I would like to describe the selection process in greater detail.

Since I have already described the detailed selection process of high dividend yield companies in a previous article, you can skip the following section written in italics, if you are already familiar with it.

First step of the Selection Process: Analysis of the Financial Ratios

In order to identify companies with a relatively high Dividend Yield [FWD], I use a filter process to make a pre-selection. From this pre-selection, I will later choose my top 10 high Dividend Yield companies of the month. To be part of this pre-selection of high Dividend Yield stocks, the companies should fulfill the following requirements:

• Market Capitalization > $10B
• Dividend Yield [FWD] > 2.5%
• P/E [FWD] Ratio or P/AFFO [FWD] < 30

In the following, I would like to specify why I have chosen the metrics mentioned above in order to select my top 10 high Dividend Yield stocks of the month.

A Market Capitalization of more than $10B contributes to the fact that the risks attached to your investments are lower, since companies with a higher Market Capitalization tend to have a lower volatility than companies with a low Market Capitalization.

A P/E [FWD] Ratio of less than 30 implies that the price you pay for the company is not extraordinarily high, thus filtering out those that have stock prices in which high growth expectations are priced in. High growth expectations imply strong risks for investors since the stock price could drop significantly. Again, the filtering process helps us to reduce the risk so that we are more likely to make an excellent investment decision.

Second step of the selection process: Analysis of the Competitive Advantages

In a second step, the companies’ competitive advantages (for example: brand image, innovation, technology, economies of scale, etc.) are analyzed in order to make an even narrower selection. I consider it to be particularly important for companies to have strong competitive advantages in order to stand out against the competition in the long term. Companies without strong competitive advantages have a higher probability of going bankrupt one day, thus representing a strong risk for investors to lose their invested money.

Third step of the selection process: The Valuation of the companies

In the third step of the selection process, I will dive deeper into the Valuation of the companies.

In order to conduct the Valuation process, I use different methods and criteria, for example, the companies’ current Valuation as according to my DCF Model, the expected compound annual rate of return as according to my DCF Model and/or a deeper analysis of the companies’ P/E [FWD] Ratio. These metrics should serve as an additional filter to only select companies that currently have an attractive Valuation, which helps you to identify companies that are at least fairly valued.

The Fourth and final step of the selection process: Diversification over Industries and Countries

In the fourth and final step of the selection process, I have established the following rules for choosing my top picks: in order to help you diversify your investment portfolio, a maximum of two companies should be from the same industry. In addition to that, there should be at least one pick that is from a company that is based outside of the United States, serving as an additional geographical diversification.

My Top 10 High Dividend Yield Companies to Consider Investing in for September 2024

• Ares Capital (NASDAQ:ARCC)
• Banco Santander (NYSE:SAN)
• BB Seguridade Participações S.A. (OTCPK:BBSEY)
• Chevron (NYSE:CVX)
• Diageo (NYSE:DEO) (OTCPK:DGEAF)
• Realty Income (NYSE:O)
• Rio Tinto (NYSE:RIO)
• The Bank of Nova Scotia (NYSE:BNS)
• United Parcel Service (NYSE:UPS)
• Verizon (NYSE:VZ)

Diageo

Within the past 12-month period, Diageo has significantly underperformed the S&P 500 (NYSEARCA:VOO). This is evidenced by the company’s Total Return of -19.57% compared to the 26.14% of the S&P 500.

This underperformance is one of the reasons why Diageo presently has an attractive Valuation and has made it into this list of high dividend yield companies to consider investing in during this month of September.

Diageo’s P/E [FWD] Ratio of 20.29 is 14.24% below its 5-year average, suggesting that the company is undervalued. This undervaluation is also evidenced by a Dividend Yield [TTM] of 3.02%, which is significantly above its 5-year average of 2.27%.

Diageo’s excellent position within the Distillers and Vintners Industry and its financial health are underlined by an EBIT Margin [TTM] of 29.59% and a Return on Equity of 38.92%.

Today, Diageo pays shareholders a Dividend Yield [FWD] of 3.11%, indicating its ability to produce significant dividend income for your investment portfolio. The company has shown a 5-Year Dividend Growth Rate [CAGR] of 2.81%, which underscores its modest dividend growth potential.

Banco Santander

The Madrid-based bank Banco Santander with a current Market Capitalization of $76.89B operates through the following segments:

• Retail Banking
• Santander Corporate & Investment Banking
• Wealth Management & Insurance
• and Pagonxt.

Banco Santander presently offers shareholders a Dividend Yield [FWD] of 3.77%. The bank’s low Dividend Payout Ratio [TTM] [Non GAAP] of 24.17% offers investors significant room for dividend enhancements in the years ahead.

Consensus Dividend Estimates confirm that Banco Santander is an attractive pick for those investors aiming to blend dividend income and dividend growth. The Consensus Yield for 2024 stands at 4.54%, while it is at 5.28% for 2025, and 5.59% for 2026. This shows that the Spanish bank is an attractive choice for dividend income and dividend growth-focused investors.

In addition to that, it is worth highlighting that Banco Santander presently has an attractive Valuation: its P/E [FWD] Ratio of 7.37 stands 40.18% below the Sector Median, a signal of the bank’s undervaluation.

BB Seguridade Participações S.A.

BB Seguridade Participações S.A. is a subsidiary of Banco do Brasil S.A. (OTCPK:BDORY). The company operates within the Multi-line Insurance Industry and is based in Brasília, Brazil.

BB Seguridade Participações S.A. presently pays its shareholders a Dividend Yield [FWD] of 7.54%. In addition to that, the company has shown a 10-Year Dividend Growth Rate [CAGR] of 6.17%.

These numbers indicate that you can effectively blend dividend income and dividend growth through an investment in the company. This makes it an attractive candidate for potential inclusion into The Dividend Income Accelerator Portfolio. BB Seguridade Participações S.A. is already on my watchlist for closer observation.

In addition to its attractive Dividend Yield, I am convinced that the company presently has an attractive Valuation, which has been important in my decision to add it to this list of high dividend yield companies, ensuring that you can invest with a margin of safety. BB Seguridade Participações S.A.’s current P/E [FWD] Ratio stands at 8.40, which is 31.85% below the Sector Median.

However, due to the currency risk, I suggest setting an allocation limit of 2.5%.

Chevron

Considering the past 5 years, the S&P 500 has significantly outperformed Chevron. While the S&P 500’s Total Return has been +93.64%, Chevron’s Total Return has been +55.58% in the same period.

Today, Chevron pays a Dividend Yield [FWD] of 4.47%. At the same time, it is worth highlighting the company’s 5-Year Dividend Growth Rate [CAGR] of 6.41% and its relatively low Payout Ratio of 52.42%. For these reasons, I am convinced that Chevron is an excellent choice for investors aiming to blend dividend income and dividend growth.

In addition, Chevron’s fair valuation can be highlighted. At this moment in time, the company exhibits a P/E [FWD] Ratio of 13.11, which is in line with the Sector Median of 12.63.

The Bank of Nova Scotia

The Bank of Nova Scotia offers investors an attractive mix of a relatively low Valuation (P/E [FWD] Ratio of 10.56, which stands below the Sector Median of 12.33, indicating that the bank is presently undervalued), an attractive Dividend Yield [FWD] of 6.43%, a Payout Ratio of 67.52% (which indicates scope for future dividend enhancements), and a 5-Year Dividend Growth Rate [CAGR] of 3.76%.

These metrics have increased my confidence to not only add The Bank of Nova Scotia to my watchlist for potential inclusion within The Dividend Income Accelerator Portfolio, but also to include it on this list of high dividend yield companies to consider investing in during this month of September 2024.

Compared to U.S. banks such as Bank of America (NYSE:BAC), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM), The Bank of Nova Scotia not only pays a significantly higher Dividend Yield but also has a significantly lower Valuation.

The Bank of Nova Scotia’s Dividend Yield [FWD] of 6.43% lies significantly above Bank of America’s Dividend Yield [FWD] of 2.60%, JPMorgan’s 2.08% and Citigroup’s 3.64%.

Additionally, The Bank of Nova Scotia’s P/E [FWD] Ratio of 10.56 is lower than Bank of America’s 12.25, JPMorgan’s 12.38, and Citigroup’s 10.75, indicating that The Bank of Nova Scotia is the most attractive choice in terms of Valuation among these four banks.

However, JPMorgan, Bank of America, and Citigroup’s significantly lower Payout Ratios of 24.54%, 33.80%, and 37.29% respectively should be noted, when compared to The Bank of Nova Scotia’s 67.52%. These numbers indicate that the U.S. banks carry a lower risk of a dividend reduction and a reduced overall risk level when compared to The Bank of Nova Scotia.

While Bank of America presently represents 2.58% of The Dividend Income Accelerator Portfolio, JPMorgan currently accounts for 1.82%. Due to their attractive risk-reward profile, I plan to overweight both U.S. banks within our dividend portfolio.

Rio Tinto

Rio Tinto, with a current Market Capitalization of $106.39B, explores and processes mineral resources on a worldwide basis.

At the company’s current share price of $63.13, Rio Tinto pays a Dividend Yield [FWD] of 6.90%. This makes it an attractive choice for dividend-income focused investors.

Furthermore, it is worth highlighting the company’s 10-Year Dividend Growth Rate [CAGR] of 7.95%, which makes it an attractive investment choice when aiming to combine dividend income and dividend growth. This has also been the reason for which I have added Rio Tinto to my watchlist for potential inclusion within our dividend portfolio.

A low P/E [FWD] Ratio of 8.45, which is 55.45% below the Sector Median, has increased my confidence to add Rio Tinto to this list of high dividend yield companies to consider investing in for September 2024.

Below, you can find a projection of Rio Tinto’s Dividend and Yield on Cost when assuming an Average Dividend Growth Rate of 4% (a conservative assumption based on the company’s 5-Year Dividend Growth Rate [CAGR] of 5.62%). Assuming these growth rates, you could potentially reach a Yield on Cost of 10.17% in 2034, 15.05% in 2044, and 22.28% in 2054.

United Parcel Service

Within the past 12-month period, UPS has significantly underperformed when compared to the S&P 500. While UPS’ Total Return has been -21.08%, the performance of the S&P 500 has been significantly superior (26.14%).

The result of UPS’ underperformance is the company’s relatively low Valuation. Today, UPS has a P/E GAAP [FWD] Ratio of 17.61, which stands 21.76% below the Sector Median, reflecting that the company is presently undervalued.

At its current price level of $127.32, UPS pays a Dividend Yield [FWD] of 5.13%, which makes it an attractive choice for dividend income investors.

However, it should be highlighted that UPS’ current Payout Ratio of 89.67% stands at a high level. This strengthens my opinion to underweight the company in a dividend portfolio, not allocating more than 2% to it. This approach means that a possible dividend reduction would only have a limited negative impact on the Total Return of our investment portfolio.

Realty Income

Realty Income has also made it into this list of high dividend yield companies to consider investing in during this month of September 2024. This is thanks to the company’s currently attractive Dividend Yield [FWD] of 5.09%, its AFFO Payout Ratio [FWD] of 74.56%, in addition to its 3-Year Dividend Growth Rate [CAGR] of 4.33%. All of these metrics indicate Realty Income’s attractiveness for those investors aiming to combine dividend income and dividend growth, and for those looking for companies that pay a sustainable dividend.

In addition, it can be highlighted that Realty Income is presently a buy as according to the Seeking Alpha Quant Rating. Furthermore, the company has an attractive rating as according to the Seeking Alpha Factor Grades, in which it gets an A+ for Growth, and an A for Profitability. Both ratings underline my own buy rating for Realty Income.

Verizon

At Verizon’s current stock price of $41.21, the company offers investors a Dividend Yield [FWD] of 6.41%. With a P/E [FWD] Ratio of 9.35, the company also has an attractive Valuation. Its current P/E [FWD] Ratio stands 47.96% below the Sector Median, reflecting Verizon’s undervaluation.

Below, you can find Consensus Dividend Estimates for Verizon, which underline its suitability for dividend income investors. For 2024, its Consensus Dividend Yield stands at 6.45%, for 2025, it’s at 6.57%, and for 2026, it’s at 6.70%.

Compared to competitor AT&T (NYSE:T), Verizon presently pays a higher Dividend Yield (6.41% compared to 5.60%), has shown more dividend growth in recent years (5-Year Dividend Growth Rate [CAGR] of 1.99% compared to AT&T’s -6.25%), and has the lower Valuation (P/E [FWD] Ratio of 9.35 compared to AT&T’s 9.83). These metrics make Verizon the superior choice at this moment in time, especially for dividend income oriented investors.

Ares Capital

With a current Dividend Yield [FWD] of 9.16%, Ares Capital is a strong choice for dividend income oriented investors. With such a high Dividend Yield, I believe that the company can be an important strategic element for a dividend income focused portfolio, to help raise the portfolio’s Weighted Average Dividend Yield. For this reason, I have also incorporated Ares Capital into The Dividend Income Accelerator Portfolio, in which the company currently represents 3.48% of the overall portfolio.

The company has shown 19 Consecutive Years of Dividend Payments, which underlines its capacity to contribute to the portfolio’s income generation.

The Seeking Alpha Dividend Grades, which you can find below, further underscores my investment thesis that Ares Capital is an excellent choice for dividend investors. For Dividend Growth, the company receives an A+ rating, and an A for Dividend Yield.

Balancing Dividend Income and Dividend Growth Within Your Portfolio

After identifying those high dividend yield companies that pay sustainable dividends, I believe it is crucial to include them in a well-balanced dividend portfolio which not only consists of high dividend yield companies, but also companies with a strong dividend growth focus, as this approach can bring you the most benefits.

Balancing within your investment portfolio companies that pay an attractive dividend yield with those that have strong dividend growth potential is an excellent strategy that allows you to generate steadily increasing extra income through dividend payments. At the same time, it allows you to strive for capital appreciation, driven by the strong dividend growth potential of the selected companies. Such an approach is also utilized and implemented by The Dividend Income Accelerator Portfolio.

The Dividend Income Accelerator Portfolio

The Dividend Income Accelerator Portfolio’s objective is the generation of income via dividend payments, and to annually raise this sum. In addition to that, its goal is to attain an appealing Total Return when investing with a reduced risk level over the long term.

The Dividend Income Accelerator Portfolio’s reduced risk level will be reached due to the portfolio’s broad diversification over sectors and industries and the inclusion of companies with a low Beta Factor.

Below, you can find the characteristics of The Dividend Income Accelerator Portfolio:

• Attractive Weighted Average Dividend Yield [TTM]
• Attractive Weighted Average Dividend Growth Rate [CAGR] 5 Year
• Relatively low Volatility
• Relatively low Risk-Level
• Attractive expected reward in the form of the expected compound annual rate of return
• Diversification over asset classes
• Diversification over sectors
• Diversification over industries
• Diversification over countries
• Buy-and-Hold suitability

Today, The Dividend Income Accelerator Portfolio offers investors a Weighted Average Dividend Yield [FWD] of 4.20%, and a 5-Year Weighted Average Dividend Growth Rate [CAGR] of 7.31%, strategically integrating both dividend income and dividend growth, and helping investors to constantly increase their wealth while investing with a reduced risk-level.

Conclusion

An extraordinarily high dividend yield of a company can be an indicator of a possible dividend reduction in the future, and therefore can also be a sign of a possible weak stock performance. A weak stock performance is often the result of a dividend reduction.

For this reason, a careful selection process of high dividend yield companies is essential when aiming to incorporate companies with a high capacity to produce dividend income.

Such a careful selection process will allow us to identify companies that pay sustainable dividends, allowing us to increase our wealth steadily over time.

Each of the high dividend yield companies I have presented in today’s article can be a strategically important position for your dividend portfolio, enhancing its capacity to generate a sustainable dividend income.

Each pick pays an attractive Dividend Yield, has potential for dividend growth, a currently attractive Valuation, and competitive advantages that ensure it should be able to stand out against competitors over the long term, thus allowing us to protect our invested capital.

The well-balanced mix of high dividend yield companies and dividend growth companies is one of the main characteristics of The Dividend Income Accelerator Portfolio, which effectively blends high dividend yield companies (such as those presented in today’s article) with companies that focus on dividend growth.

When selecting both high dividend yield companies and dividend growth companies for our dividend portfolio, I focus on identifying those that pay sustainable dividends.

The implementation of such a strategic and well-balanced investment approach with companies that pay sustainable dividends offers investors the capacity to annually increase their dividend income significantly while investing with a reduced risk level and with elevated chances for successful investment outcomes. Such an approach also allows you to not only focus on dividend payments but also on capital appreciation.

Author’s Note: Feel free to share any feedback on my selection of high dividend yield companies to consider investing in September 2024. What are your favorite high dividend yield companies for September 2024?

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.