Looking for Oversized Dividends in March 2020? Read This
In a soaring market, a few percentages of dividends may not seem like much. Over the past few months, the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite have all reached new all-time highs. In this kind of environment, dividend stocks can get overlooked.
However, many analysts have pointed out that recently, the market has been trading like it’s at the end of a cycle. Given the bloated valuations of U.S. equities, a major pullback could be on the horizon.
And that’s why dividend stocks deserve a look. When a company decides to pay regular dividends, its shareholders get paid no matter where the company’s stock price is going. In other words, dividends represent a sure-fire way to earn a return from stocks despite market volatility.
For those looking to earn that return with certainty, here’s a look at the three top dividend stocks to watch in March 2020. They yield up to 10%.
List of 3 Top Dividend Stocks for March 2020
| Company Name | Stock Ticker | Dividend Yield |
| General Dynamics Corporation | NYSE:GD | 2.2% |
| Kohl’s Corporation | NYSE:KSS | 6.4% |
| ARMOUR Residential REIT, Inc. | NYSE:ARR | 10.0% |
(Source: Google Finance, last accessed February 25, 2020.)
General Dynamics Corporation
For the most part, the aerospace and defense industry isn’t known as the go-to choice for income investors. But if you ignore this industry, you could miss out on some serious dividend growth opportunities.
Check out General Dynamics Corporation (NYSE:GD), an aerospace and defense company with a wide range of product capabilities—including business jets, combat vehicles, communications systems, and nuclear-powered submarines. Headquartered in Reston, Virginia, General Dynamics is currently the fifth-largest defense contractor in the United States.
Right now, General Dynamics has a quarterly dividend rate of $1.02 per share. With GD stock trading at $181.98 apiece, that quarterly rate translates to an annual dividend yield of 2.2%.
The yield itself is nothing special. In fact, the reason why aerospace and defense companies may lack income-investor appeal is that none of the big players have particularly high yields. However, what makes GD stock stand out is its dividend growth.
Consider this: General Dynamics has been paying increasing dividends every year for the past 28 years. (Source: “Dividend/Split History,” General Dynamics Corporation, last accessed February 25, 2020.)
That makes it an S&P 500 Dividend Aristocrat, which is a title awarded to S&P 500 companies with at least 25 consecutive years of annual dividend increases. At the time of this writing, there are only 64 S&P 500 Dividend Aristocrats.
Given the cyclical nature of the aerospace and defense industry, General Dynamics Corporation’s dividend growth history is quite impressive.
Now, you are probably wondering whether the company can keep that track record continuing after all the dividend hikes over the years. Well, if you take a look at the financials, you’d see that the answer is most likely “yes.”
In the fourth quarter of 2019, General Dynamics generated $10.8 billion of revenue, a 3.8% increase year-over-year. Earnings came in at $3.51 per share for the quarter, which not only marked a 14.3% increase from a year ago, but also easily covered its quarterly dividend payment of $1.02 per share. (Source: “General Dynamics Reports Fourth-Quarter and Full-Year 2019 Financial Results,” General Dynamics Corporation, January 29, 2020.)
In full-year 2019, GD’s revenue grew 8.7% from 2018 to $39.4 billion. Growth was across the board: the company’s aerospace revenue surged 15.9% in 2019, while its defense segments delivered over six percent growth.
For the year, General Dynamics Corporation’s earnings per share increased 6.8% to $11.98. Considering that the company declared four quarterly dividends totaling $4.08 per share in 2019, its payout ratio came out to just 34.1%.
Mind you, General Dynamics was sitting on a record-high order backlog of $86.9 billion at the end of 2019. And because U.S. defense spending is expected to keep going up in the years ahead, that backlog will likely grow.
Put it together and you see that General Dynamics is well positioned to keep growing its dividend. The company’s board of directors usually reviews its dividend policy in early March, so the next dividend increase should arrive soon.
Kohl’s Corporation
Moving up the yield ladder we have Kohl’s Corporation (NYSE:KSS), a department store retail chain headquartered in Menomonee Falls, Wisconsin.
We know that the retail industry hasn’t been in the best of shape due to the threat of e-commerce, and stocks of retail companies aren’t exactly hot commodities at the moment. But because of the inverse relationship between dividend yield and share price, the lackluster performance of certain retailer stocks has resulted in elevated yields.
In the case of Kohl’s Corporation, the company’s share price tumbled more than 30% over the past 12 months and is now at $42.21. With a quarterly dividend rate of $0.67 per share, KSS stock offers an annual dividend yield of around 6.4%.
Note that, despite its oversized yield, KSS actually joined the dividend stock group relatively late. In the retail industry, there are many companies that have been paying dividends for decades. Kohl’s Corporation, on the other hand, didn’t start paying dividends until 2011.
Still, the company’s dividend growth since then has been nothing short of impressive. From its first quarterly dividend of $0.25 per share paid in June 2011 to the current rate of $0.67 per share, Kohl’s payout has grown by a whopping 168%. (Source: “Cash Dividends & Stock Splits,” Kohl’s Corporation, last accessed February 25, 2020.)
At the time of this writing, Kohl’s is yet to report its fourth-quarter results. But from its third-quarter earnings report, we see that the company’s comparable sales actually grew 0.4%. (Source: “Kohl’s Corporation Reports Financial Results,” Kohl’s Corporation, November 19, 2020.)
And while the company’s adjusted earnings of $0.74 per share in the third quarter was down from a year earlier, the amount was more than enough to cover its quarterly dividend payment.
For full-year 2019, management expects Kohl’s to generate adjusted earnings of $4.75 to $4.95 per diluted share. Since the company paid total dividends of $2.68 per share during the year, achieving the midpoint of the guidance range would result in a payout ratio of 55.3%.
So there’s still room for the payout to grow. And since it has been about a year since Kohl’s Corporation’s last dividend hike, the next payment will likely be an increase.
ARMOUR Residential REIT, Inc.
For those who really want to earn oversized dividends in March 2020, check out ARMOUR Residential REIT, Inc. (NYSE:ARR). As its name suggests, this is a real estate investment trust (REIT). But rather than being a landlord like a lot of REITs, ARMOUR Residential REIT, Inc. focuses on the mortgage side of the business.
In particular, the company invests in residential mortgage-backed securities (RMBSs) that are issued or guaranteed by a U.S. Government-sponsored entity such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or guaranteed by the Government National Mortgage Administration (Ginnie Mae). (Source: “Corporate Profile,” ARMOUR Residential REIT, Inc., last accessed February 25, 2020.)
Collectively, these securities are called agency RMBSs and can provide ARMOUR Residential REIT with a predictable stream of interest and principal payments.
And like most REITs, ARMOUR Residential is required by law to pass most of its profits to shareholders in the form of dividends. In exchange, the company pays little to no income tax at the corporate level.
Here’s where things get more interesting: rather than paying investors quarterly dividends—which is what most dividend stocks do—ARMOUR Residential decided to follow a monthly dividend policy. So instead of waiting three months between two dividend checks, ARR stock investors can get paid every single month.
On February 19, the REIT’s board of directors declared a cash dividend of $0.17 per share for March. The dividend will be paid on March 27 to shareholders of record as of March 16. (Source: “ARMOUR Residential REIT, Inc. Announces March 2020 Dividend of $0.17 Per Common Share and Confirms March 2020 Dividend of $0.14583 Per Series C Preferred Share,” ARMOUR Residential REIT, Inc., February 19, 2020.)
Since ARR stock currently trades at $20.42 per share, its monthly dividend rate comes out to a staggering annual yield of 10.0%.
For yield hunters, few things look more attractive than a monthly dividend stock with a double-digit yield.
Of course, given what most other companies are paying at the moment (much less), ARR stock’s payout can seem too good to be true. So let’s take a look at the financials to see if the REIT can really afford its current dividend policy.
According to the company’s most recent earnings report, in the fourth quarter of 2019, ARMOUR Residential REIT generated core income including drop income of $36.5 million, or $0.55 per share. (Source: “ARMOUR Residential REIT, Inc. Reports Financial Results for the Quarter Ended December 31, 2019,” ARMOUR Residential REIT, Inc., February 19, 2020.)
Core income including drop income is defined as net income excluding impairment losses, gains or losses on sales of securities and early termination of derivatives, unrealized gains or losses on derivatives and certain non-recurring expenses, plus drop income.
A company earns drop income when it enters into to-be-announced contracts to buy agency RMBSs for forward settlement, and drop income is defined as the difference between the spot price of similar to-be-announced contracts for regular settlement and the forward settlement price on the trade date.
Since ARMOUR Residential REIT paid three quarterly dividends totaling $0.51 per share for the quarter, its core income plus drop income of $0.55 per share covered the payout.
If you look further back, you’ll see that the company’s core income has exceeded its dividend payments for 14 consecutive quarters. When it comes to double-digit yielders, this kind of consistent dividend coverage is considered quite impressive.
If an investor wants to collect ARR stock’s upcoming monthly dividend, they would need to own the company’s shares before the ex-dividend date, which is set to be March 13.