2 Safe Dividend Stocks for Your Income Portfolio
Not all dividend stocks are created equal. Some offer monstrous 10% yields or more, but their share prices dwindle with each passing year.
With that in mind, I have identified two dividend stocks that offer above-average yields and have characteristics that suggest they should be safer than most massive yielders.
A niche New York bank
New York Community Bancorp is one of the highest-yielding banks, and arguably one of the safest.
The bank focuses on lending to multifamily investors in the New York City area, where rents are seemingly always on the rise and demand for housing is permanently strong. Due to the underlying characteristics of the real estate market, the bank's credit metrics are often near the top of the industry, even during the depths of the financial crisis.
The stock is no slouch, though. Today's buyers will pay about 16 times last year's earnings. But because the bank pays out almost all of its income each year, the stock yields a respectable 6.7% dividend.
Be advised, though, that this won't be a highflier. Because it pays out almost all of its earnings, there is little room for growth over time. Shareholders have enjoyed the same $0.25 quarterly dividend since 2004. But when it comes to safety, New York Community Bancorp's history as a conservative lender and operator makes it a stable stock for your income portfolio.
A federation of free cash flow
Federated Investors also looks appealing, even though its biggest business isn't contributing to the bottom line.
Federated Investors is an asset manager. It collects fees for managing more than $358 billion in client funds. The bulk of its business comes from the fixed-income side: 86% of its assets under management can be found in bond and money market investments.
Hamstrung by low rates, Federated Investors has voluntarily waived fees on its money market funds. These waivers cost the company about $30 million per quarter -- lost pre-tax income it has passed up since the fourth quarter of 2008.
Despite this weakness, Federated Investors is highly profitable. The company trades at about 20 times last year's earnings, but only at about 12 times last year's free cash flow. And the share yield of 3.5% is attractive in the current low-rate environment.
If rates rise, Federated Investors should be able to end its waivers, juicing profitability. But even if low rates persist, the company's valuation and sufficient dividend give investors reason to wait patiently.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their nondividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.
The article 2 Safe Dividend Stocks for Your Income Portfolio originally appeared on Fool.com.Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Federated Investors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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