Top Dividend Stocks for August 2023

BRY, GNK, ARI, PXD, and EGLE lead peers by forward dividend yield

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August's top dividend stocks include oil exploration firm Berry Corp. (BRY), marine shipping companies Genco Shipping & Trading Ltd. (GNK) and Eagle Bulk Shipping Inc. (EGLE), real estate investment trust (REIT) Apollo Commercial Real Estate Finance Inc. (ARI), and oil and gas company Pioneer Natural Resources Co. (PXD).

Dividend-paying companies tend to be well-established, with stable earnings and a track record of distributing a portion of them to shareholders in the form of cash or additional stock.

One useful measure to gauge the sustainability of a company's dividend payments is the dividend payout ratio (DPR), which measures total dividends divided by net income. It tells investors how much of the company's net income is being paid to shareholders in the form of dividends compared with how much the company is retaining to invest in further growth.

If the ratio exceeds 100% or is negative (meaning the company has posted a net loss), the company may be borrowing to pay dividends. In these cases, the dividends are at a relatively greater risk of being cut.

While dividend stocks are known for the regularity of their payments, the payout may be cut to preserve cash in difficult times.

Dividend stocks, as measured by the S&P 500 Dividend Aristocrats Index, are up 9.5% in the past year versus the 14.6% gain of the Russell 1000 Index, which tracks the 1,000 largest-capitalization U.S. stocks.

Below, we look at the top five dividend stocks in the Russell 3000 Index by forward dividend yield, excluding companies with payout ratios that are either negative or in excess of 100%.

These market performance numbers and statistics below are as of July 21, while benchmark figures above are as of July 24.

Berry Corp. is an upstream energy company exploring oil properties within the U.S. In the first quarter, the company doubled its dividend to 12 cents per share. Berry's first-quarter revenue nearly tripled from a year ago, when the company lost $132 million on oil and gas sales derivatives. For that period, the company paid 13 cents per share in dividends, double the quarterly rate of the prior year.

Genco Shipping & Trading Ltd. is an ocean transport company with 44 vessels that ship dry-bulk cargo internationally. The company's first-quarter dividend was 15 cents per share and represented its 15th consecutive payout. Revenue declined by 31% year-over-year for the first quarter amid a lower rate of return from Genco's shipping vessels. The company's earnings didn't technically meet management's conditions for a dividend payout, but the Board of Directors recommended the company set aside less of its earnings for future investment so as to pay the dividend.

Apollo Commercial Real Estate is a REIT that invests in a variety of commercial real estate-related debt products. To qualify as a REIT, a company has to pay 90% of its taxable income back to shareholders in the form of dividends every year. For the first quarter, Apollo reported net revenue improvement of about 36% to $87.1 million as net income more than tripled. The company's latest quarterly dividend of 35 cents per common share was paid on July 14, 2023.

Pioneer is an oil and gas exploration company operating primarily in the Permian Basin region of the U.S. Revenue fell by about 26% year-on-year (YOY) for the first quarter and earnings per share (EPS) dropped even more sharply. Nonetheless, the company increased the base dividend component of its quarterly base-plus-variable dividend by 14% to $1.25. The total dividend for the second quarter is $3.34 per share.

Eagle Bulk Shipping is an integrated shipowner-operator of midsize drybulk vessels that serves miners, producers, traders, and customers across other industries. Revenue plunged about 43% YOY for the first quarter of 2023 as the dry-bulk market declined and rates moved lower for both time and voyage charters. The company's last quarterly dividend of 10 cents per share was paid on May 25.

High dividend yields don't always mean a company is in good financial health. Be sure to look at the financial well-being and growth potential of companies in addition to dividend yield before investing.

Dividend yield: This ratio measures the annual value of dividends received relative to a security's per-share market value. Investors calculate the dividend yield by dividing the annual dividend per share by the current stock price.

For example, if Company XYZ issues a dividend of $10 annually with a current share price of $100, it has a dividend yield of 10% ($10 / $100 = 10%). Those seeking high-yielding stocks can start their search by screening for issues with a divided yield above a certain percentage. Bear in mind that there are many other factors besides dividend yield that investors should consider before investing in a stock.

Dividend payout ratio: The DPR measures how much of a company's earnings are paid out to shareholders. Investors calculate the ratio by dividing total dividends by net income.

For instance, if Company XYZ reported a net income of $50,000 and paid $15,000 in annual dividends, it would have a DRP of 30% ($15,000 / $50,000 = 30%). This means the company pays out 30% of its earnings to shareholders. Generally, a company that pays out less than 50% of its net earnings in dividends is considered stable and has the potential for sustainable long-term earnings growth.

Dividend coverage ratio: This ratio measures the number of times a company can pay dividends to its shareholders. Investors calculate the dividend coverage ratio by dividing a company's annual EPS by its annual dividend per share.

For example, if Company XYZ reported $10 million in net income with an annual dividend of $2 million to shareholders, it has a dividend coverage ratio of five times ($10 million / $2 million). Typically, investors view a higher dividend coverage ratio as more favorable.

Two key advantages of investing in dividend stocks are generating a passive income and dividend reinvestment.

Passive income: Companies that pay dividends typically issue them quarterly, creating a reliable stream of passive income that investors can spend as they please. Dividends also have the added advantage of offsetting share-price depreciation.

Dividend reinvestment: Investors can reinvest dividends they receive back into the company to acquire more shares. This is called a dividend reinvestment plan (DRIP). Participating in a DRIP allows the investor to take advantage of compounding returns—a strategy to build long-term wealth.

A high yield is just one of several aspects to consider when investing in dividend stocks. A higher-than-average yield can signal trouble if a struggling company is paying large dividend amounts in an effort to attract investors.

In addition to dividend yield, be sure to take a good look at the following data as well.

It’s a percentage that represents the income (via dividends) that a company pays stock investors versus the price of the stock. Dividend yield is just one metric that may help investors to decide whether a company's stock can make a good addition to their portfolios.

While dividend yield compares dividend income with stock price, the payout ratio compares dividend income with company earnings. In other words, it shows investors how much a company pays them versus how much it keeps for itself. It can provide an idea of the income investors may expect to receive in the future. A payout ratio that is too high—where the company pays investors much more than it reinvests in itself—can mean there's not much room for dividend growth. It may signal a company is in trouble.

Famously, the following companies are among those that have paid shareholders dividends for over 100 years: Coca-Cola, General Mills, Chubb, Colgate-Palmolive, Proctor & Gamble, Consolidated Edison, Eli Lilly, and ExxonMobil.

Dividend yield compares the income a company pays shareholders with the price of that stock. It’s calculated by dividing the annual dividend amount (the amount of income paid throughout a year) by the stock’s price. While a high dividend yield may be appealing, it doesn't necessarily mean a stock is a smart investment.

Dividend yield is one tool to use to screen for dividend stocks that are potentially worth owning. Overly high dividend yields may indicate that a company is struggling. Likewise, companies with extremely high payout ratios can also signal danger to investors.

Before investing your money, spend some time looking for companies that are financially healthy enough to sustain and potentially grow their dividends, and continue to offer an attractive dividend yield.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above stocks.

Berry Corp. "Berry Corp. (bry) Reports First-Quarter 2023 Results."

Genco Shipping & Trading Ltd. "Genco Shipping & Trading Ltd. Announces First-Quarter Financial Results."

U.S. Securities and Exchange Commission. "Investor Bulletin: Real Estate Investment Trusts (REITs)," Page 1.

Apollo Commercial Real Estate Finance Inc. "Q1 2023 Financial Results," Page 19.

Apollo Commercial Real Estate Finance Inc. "Apollo Commercial Real Estate Finance, Inc. Declares Quarterly Common Stock Dividend."

Pioneer Natural Resources Co. "Pioneer Natural Resources Reports First Quarter 2023 Financial and Operating Results."

Eagle Bulk Shipping Inc. "Eagle Bulk Shipping Inc. Reports Results for the First Quarter of 2023."

Dividend.com. "What Is an Ideal Payout Ratio?"

Dividend.com. "15 Companies That Have Paid Dividends For More Than 100 Years."