5 Companies Paying Out More Than 70% of Earnings in Dividends
A high payout ratio is often a warning sign, and not just for dividend investors. When a company distributes more than 70% of its net income to shareholders, it has less room for investment, debt repayment, and tougher times. But figures in financial statements rarely tell the whole story. At many high-quality companies, one-off expenses, write-downs, or accounting effects of acquisitions inflate the ratio. Where is a high payout a real risk, and where is it just a statistical illusion?
Key points
Five well-known companies pay shareholders more than 70% of their accounting earnings. Some have raised their dividends for over 50 years. Does a high payout ratio signal a real risk?
A payout ratio above 90% can look like a warning of a dividend cut. But at some companies, accounting figures significantly distort their actual ability to generate cash.
Two companies report payout ratios above 80%, even though they distribute less than half of their adjusted earnings to shareholders. What caused such a dramatic difference?
One of the companies pays a dividend of almost 6%, and its high payout is not a problem but a long-term strategy.
Even decades of stable dividends are no guarantee of safety. The history of one of the companies analyzed shows how quickly high debt and investment needs can change dividend policy.
The payout ratio is one of the most closely watched metrics for dividend stocks. It shows what share of a company’s net income it pays out to shareholders.
The general rule is this: below 60%, a dividend is comfortably covered; above 80%, coverage starts to look tight; and above 100%, a company is paying out more than it earns. The problem is that net income under GAAP accounting standards includes many items that have little to do with a company’s actual ability to pay a dividend.
A good illustration is a group of five U.S. companies that currently pay out 77% to 94% of their accounting earnings over the past 12 months as dividends. At first glance, this looks like a risky group. A closer look shows that each crossed the 70% threshold for a completely different reason. For some, it is a one-off fluctuation; for others, an investment cycle; and for one, a deliberate policy that investors have counted on for decades. Distinguishing between these scenarios is crucial for dividend investors.