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2 interesting dividend companies with a dividend above 7%

Mart Poom
30. 6. 2023
4 min read

Dividend companies are very interesting for investors. They are all the more interesting when they offer a really fat yield. But interesting high-yield companies are not so easy to find.

OneMain Holdings $OMF-0.9%

OneMain Holdings, Inc. is an independent personal loan company. The company operates under the name OneMain Financial in all 50 U.S. states and has a network of branches in 24 states. The company was formed in 2015 from Springleaf Holdings, Inc. and OneMain Financial Holdings, Inc. The original company was founded in 1912 and today has more than 1,500 branches in 44 U.S. states.

OMF
$47.63 -$0.42 -0.87%

OMF specializes in providing personal loans with low and medium interest rates and favorable terms for its customers. The company also offers other financial products such as credit cards, insurance and investment products.

In 2015, the company underwent a restructuring and separated from its parent company Citigroup. Since then, it has become a separate company and has acquired its own identity and brand. In 2018, One Main Holdings joined the S&P 500 index, a testament to its growth and stability in the market.

Financial services company OneMain Holdings plans to issue $500 million in new high yield 9% notes due in 2029. This debt offering is aimed at income investors as an alternative to the dividend provided by the company.

The dividend has been fairly wild so far. Source

For the first quarter, OneMain Holdings reported an increase in revenue but a decline in earnings due to an increase in the allowance for unexpected loan default losses. This suggests a possible problem meeting loan repayments given the current economic situation.

The biggest risk to OneMain is an increase in credit losses in the event of a downturn in the economy or an increase in unemployment. Especially loans granted in the last two years represent a higher risk. Despite the decline in profits, OneMain currently has sufficient cash flow to repay its liabilities. However, its profitability and ability to pay a high dividend depends on the state of the economy and the level of credit losses.

Despite the higher bond yields, an investment in OneMain Holdings is rather risky, especially if the company is unable to maintain its loan collection stability and higher provisions would destroy its profitability.

Verizon $VZ-0.7%

Verizon Communications is one of the largest providers of telecommunications services in the United States. Through its subsidiaries, it operates cellular and landline telephone service, provides Internet service, and cable television. The company is known as a reliable and attractive source of dividend income for investors.

VZ

Verizon

VZ
$39.10 -$0.26 -0.66%

Verizon has paid a quarterly dividend since 1984. It is considered one of the highest quality dividend payers in the US. In recent years, Verizon has steadily increased its quarterly dividend, averaging more than 3% annually since 2016. The current dividend is just over 7%. This relatively high yield attracts many income investors.

Verizon is known for its steady and increasing dividend. Source

What greatly attracts investors to hold Verizon stock for the long term is its strong market position and ability to generate stable cash flow. Verizon has about 120 million mobile customers and is one of the largest fixed internet providers in the US. This allows it to consistently generate profits and cash flow that cover dividend payments and growth. Dividend payouts currently eat up about half of the company's net income.

Risks to Verizon include increasing competition, especially from operators like T-Mobile. These companies are luring customers with lower prices, which is pushing up Verizon's sales. However, despite this competition, Verizon still has a strong customer base and management is committed to maintaining and increasing the dividend.

As mentioned, Verizon has been increasing its dividend for many years without interruption and has it well covered by earnings and free cash flow. That's a much better starting position than its competitors, especially considering that AT&T had to cut its long-standing dividend this year.

And when you look at free cash flow per share versus the dividend per share, it's even clearer that Verizon's dividend is well-backed.

Verizon's FCF is covering in stride. Source

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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