Investors Are Scrutinizing Stocks With High Yields To See If They Can Continue in a Recession

Mark Hake

These dividend stocks have attractive yields over 5%, but have enough earnings to pay for them

This is not financial advice and you should not rely on my analysis to buy or sell any stock. I am not undertaking to induce you to buy or sell any securities. I am relying on the “publisher’s exclusion” in the Investment Advisers Act of 1940 to provide this information without any personalized or individualized investment advice.

This article describes six dividend stocks to buy in July with yields over 5%. The Federal Reserve is going to raise rates again in July, which will hurt the market. But these stocks should be able to weather that. They can keep paying their dividends thanks to the stability of their underlying earnings.

  • Huntington Bancshares (HBAN): This Ohio regional bank yields 5% and has a low payout ratio of less than 43%. Also, its P/E multiple is low at 8.2x. These factors make it one of the best dividend stocks.
  • Deluxe Corp (DLX): This check processing and payments company is cheap with a 5.25% dividend yield, a 6.3% growth rate, a 5x P/E multiple, and a low payout ratio.
  • Universal Health Realty Income Trust (UHT): UHT is a REIT that invests in acute care hospitals, rehabilitation centers, and other medical facilities. The REIT has a 5.4% dividend yield and its FFO covers the dividend payment.
  • Big Lots (BIG): This well-known discount retailer has 1,438 stores across the U.S. and an online store selling inexpensive home items. It has a 5.3% dividend yield with a cheap 10x forward P/E multiple forecast for 2023.
  • KT Corp (KT): This South Korean telecom stock has a dividend yield of 5.2% and a P/E multiple of just 6.4x for 2022. KT Corp has paid its dividend every year consecutively for the past six years.
  • Store Capital (STOR): This leasing company REIT has a 5.7% dividend yield, which is well over the 5% minimum yield in this list. Its FFO forecast for 2022 puts the stock on a multiple of a little over 12x earnings.

Huntington Bancshares (HBAN)

Dividend Yield: 5%

Huntington Bancshares (NASDAQ: HBAN) is a Columbus, Ohio-based bank with 1,000 branches across 11 states. The bank is very profitable and pays an annual dividend of 62 cents per share. So, at $12.37 as of the close on June 27, the stock has a yield of just over 5%.

Moreover, HBAN stock has consistently paid a dividend every year for the past 32 years. That implies it is not going to cut its dividend during the next recession. This will provide a great deal of stability for investors.

Moreover, analysts forecast that earnings per share (EPS) will hit $1.40 this year and $1.52 next year. This shows that its dividend payout ratio is less than 43% this year, making the dividend secure. For example, even if earnings were to fall by half, they would still cover the dividend payment.

This puts HBAN stock on a forward price-to-earnings (P/E) multiple of just 8.2x, well below 10x, which is typical for a regional bank this size. In addition, its tangible book value per share (TBVP) is just $7.60. This puts the P/TBVPS multiple at 1.63x. That is not cheap, as value investors typically look for ratios below 1x.

Nevertheless, given its 5% yield, this is one of the more attractive dividend stocks. It could be a good time to start dollar-cost-averaging into HBAN stock.

Deluxe Corp (DLX)

Dividend Yield: 5.25%

Deluxe Corporation (NYSE: DLX) is a Minnesota-based payments technology company that pays a consistent $1.20 annual dividend for the past nine years. At $22.84 as of June 27, this gives DLX stock an annual yield of 5.25%.

In fact, the company has consistently paid a dividend for the past 32 years. That makes it highly likely it will keep paying this dividend even if there is a recession coming.

In addition, analysts now project its earnings will grow from $4.57 this year to $4.86 in 2023, or over 6.3%. It shows that the dividend payout ratio is low at 26.2%, meaning the dividend is easily affordable by the company.

Deluxe still makes the majority of its money from providing checks, but it knows this business in terminal decline. However, it recently acquired a payments company, First American, and hopes to grow that portion of its business. So far, analysts seem to like the company’s strategic transition.

As it stands, the stock is on a cheap forward P/E multiple of just 5x for 2022 and 4.7x for 2023. That is very cheap and it makes Deluxe stock one of the cheapest dividend stocks on this list.

Universal Health Realty Income Trust (UHT)

Dividend Yield: 5.4%

Universal Health Realty Income Trust (NYSE: UHT) is a real estate investment trust (REIT) that invests in medical facilities. This includes acute-care hospital facilities, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, emergency departments, and childcare centers. Since hospitals and related facilities are not necessarily recession-prone, this REIT stands a good chance of surviving during an economic downturn.

The REIT pays a quarterly dividend, recently raised, of 71 cents. That’s $2.84 annually. At a price of $52.55 that gives it an attractive yield of 5.4%.

The company’s FFO (funds from operations) presently covers the dividend. In the past 12 months, it made $3.67 per share in FFO, which covers the $2.84 dividend payment. That makes it reasonably clear that the company will be able to continue paying its ongoing dividend with its above-average 5.4% yield.

Big Lots (BIG)

Dividend Yield: 5.3%

Big Lots (NYSE: BIG) is a national discount retail home chain with over 1,438 stores in 47 states and an online site. It sells furniture, food, consumables, and home items.

Big Lots pays an annual dividend of $1.20, giving the stock a dividend yield of 5.3% at $22.60. Moreover, analysts forecast that it will earn $2.18 per share by the end of 2023, giving it a forward P/E multiple of just 10.4x. It also shows that the company can cover its dividend.

In fact, Big Lots guided for an outlook of positive free cash flow (FCF) of $100 million in Q2 when it reported its Q1 results. That works out to over $3.49 per share in quarterly FCF, more than enough to cover the 40-cent quarterly dividend.

KT Corp (KT)

Dividend Yield: 5.2%

KT Corp (NYSE: KT) is a South Korean telecom company that also provides broadband services, and media/content services.

KT’s yield is attractive at 5.2% assuming the dividend stays level. KT Corp pays one single annual dividend. The most recent dividend was declared on April 27 for 75 cents. However, the next dividend will probably go ex-dividend until Dec. 30, 2022, but it will not be declared until May 2023. This is one of the few companies that has an ex-date well before the declaration date. So you have to own the stock before the end of 2022.

KT Corp also has a low 6.4x forward multiple this year and 6.2x next year. Moreover, earnings are forecast to grow modestly from $2.23 per share in 2022 to $2.30 in 2023. Its revenue is also projected to grow incrementally from $14.57 billion to $14.97 billion in 2023.

That shows that its earnings will cover the dividend going forward. This makes it one of the more interesting dividend stocks to own going forward.

Store Capital (STOR)

Dividend Yield: 5.7%

Store Capital (NYSE: STOR) is a real estate investment trust (REIT) that invests in single-tenant store offices. The stock pays an annual dividend of $1.54, giving it a 5.7% yield at $27.22 per share.

By comparison, its four-year dividend yield average was 4.56%, according to Seeking Alpha. This is despite the fact that the dividend has risen every year for the past seven years.

STOR stock is likely to rise to a point where its dividend yield falls to its historical average. That implies a potential gain of 24% to $33.77 per share. This can be seen by dividing $1.54 by 4.56%.

Moreover, Store Capital’s earnings cover the $1.54 annual dividend. Its earnings are measured by its funds from operations (FFO). For example, analysts forecast its 2022 FFO will be $2.16 in 2022 and $2.24 in 2023. That shows that its dividend payout ratio is 71% for 2022.

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Mark R. Hake, CFA writes articles at InvestorPlace.com, Barchart.com, Medium.com, and Newsbreak.com as well as a Beehiiv free newsletter on stocks and cryptos.

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Mark Hake is a financial analyst, investor, and Chartered Financial Analyst (CFA). He writes about US and foreign stocks as well as cryptos, hedge funds, and private equity. He previously ran his own hedge fund, investment research firm, and acted as CFO for a fintech startup. He focuses on finding value, arbitrage, and hidden asset opportunities.

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