Getting income from stock investments is why many invest in certain companies. It can provide a stable cash stream while offering the benefit of potential appreciation in stock price. However, companies must balance how much they pay their shareholders through dividends and how much they retain to reinvest back in their business.
If a company has valuable projects to pursue but lacks cash, its high dividends could hurt shareholders in the long run. One way to measure a company's ability to reinvest is to look at the dividend payout ratio (DPR). This ratio shows the percentage of the company's earnings it pays out as dividends.
If the dividend payout ratio is too high, the company might not have the cash it needs to invest in potentially high-return projects in the future. This could include making large capital expenditures (CAPEX) or strategically acquiring another firm.
The inability to do this could negatively affect the stock price over time or prevent it from rising as much as it otherwise could. Below, I'll review three U.S. stocks with dividend yields over 5% and dividend payout ratios that allow for solid reinvestment back into their business. For this analysis, I'll use these companies' next twelve-month (NTM) dividend yield, which is an average of analyst projections for the company's dividend yield.
Ford Motor: Lots of Dividend Income ...
