Fixed-income investments have been making a comeback. After nearly 10 consecutive years of the Federal Reserve's near zero percent interest rate (ZIRP) policy, investors can get a risk-free return of almost 5% from short-term U.S. Treasury securities.
However, once the Federal Reserve announced plans to lower interest rates one, and perhaps multiple times in 2024, the flight to safety reversed. But inflation had other ideas.
The March 2024 reads on inflation show that the progress made in slowing the rate of acceleration is stalling, and it may even reverse. Higher oil prices and continued government spending are also fueling what many believe will be a continued rise in the inflation rate for much of 2024.
That means fixed income is back, right? Well, yes, and no.
The yield on 2-year Treasury bills is around 4.9% as of April 2024. That's attractive to fixed-income investors who want a safe place to park some of their portfolios.
But if you're looking for an alternative to fixed income, this is a good time to look for high-yield dividend stocks. These are dividend stocks with yields above or near the rate of return you can get from 2-year Treasury notes. And because they give you the added benefit of capital gains, these assets can keep your portfolio ahead of inflation.
Quick Links
- Verizon Communications
- Enbridge
- Altria Group
- Rio Tinto Group
- United Parcel Service
- Bristol-Myers Squibb
- Extra Space Storage (EXR)
#1 - Verizon Communications (NYSE:VZ)
Verizon Communications Inc. (NYSE: VZ) is a name that frequently comes up when talking about high-yield dividend stocks. The company has a boring (g (i.e. mature) business model that makes up in predictability what it may lack in sizzle.
Like many quality dividend stocks, it's all about earnings, and Verizon's margins have been lacking in recent quarters. However, in April 2024, the company posted better-than-expected margins as it delivered earnings that beat to the upside by three cents. Verizon also increased its cash flow and reaffirmed upside guidance.
VZ stock has an attractive dividend yield of 6.87%, which calculates to about 29% of the company's cash flow. This may be a case of under-promising now to overdeliver later. Even if better margins don't show up in the company's earnings, it will almost certainly point to continued dividend growth over the next few years.
About Verizon Communications
Verizon Communications Inc, through its subsidiaries, engages in the provision of communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
Read More - Current Price
- $40.39
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $46.37 (14.8% Upside)
#2 - Enbridge (NYSE:ENB)
The energy sector is a good place to find high-yield dividend stocks, and one of the best names to consider is Enbridge Inc. (NYSE: ENB). The Canadian midstream company is one of the leading transporters and distributors of crude oil and natural gas, with one of the most extended networks of pipelines, storage facilities, renewable energy assets, and natural gas distribution networks.
Over the last five years, oil prices have been affected by supply and demand. That tug-of-war is clearly seen in Enbridge's revenue. However, you'll also notice it hasn't affected the company's earnings, which have been consistent on a year-over-year basis, even going back two years. That's because over 90% of the company's earnings are tied to long-term inflation-linked contracts.
In the short term, the Enbridge Analyst Ratings on MarketBeat give ENB stock a consensus price target of $55.20, which is 57% higher than the stock's price as of April 22, 2024. And that goes along with a dividend that has a current yield of 7.75%. The payout ratio is about 74% of its cash flow. However, that cash flow has been increasing by an average of 10% over the last 30 years.
About Enbridge
Enbridge Inc, together with its subsidiaries, operates as an energy infrastructure company. The company operates through five segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services. The Liquids Pipelines segment operates pipelines and related terminals to transport various grades of crude oil and other liquid hydrocarbons in Canada and the United States.
Read More - Current Price
- $42.18
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#3 - Altria Group (NYSE:MO)
Altria Group Inc. (NYSE: MO) is known as one of the "Big 3" tobacco companies in the United States. In recent years, the company has been pivoting to capture more of the smokeless tobacco market and, with it, the coveted Gen-Z consumer. As the company's revenue and earnings show, demand hasn't waned over the last five years.
However, the same enthusiasm isn't seen in investor sentiment. MO stock is trading in a two-year downtrend. One of the recent headwinds is a potential ban on menthol cigarettes.
The future of that ban is somewhat in doubt, but the company's regular and growing dividend is not. In fact, Altria is one of a select group of companies known as dividend kings. These companies have increased their dividends for at least 50 consecutive years. In the case of Altria, the streak is 55 years and counting.
The dividend yield of 9.22% makes it one of the best high-yielding dividend stocks for income-seeking investors.
About Altria Group
Altria Group, Inc, through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States. The company offers cigarettes primarily under the Marlboro brand; large cigars and pipe tobacco under the Black & Mild brand; moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands; oral nicotine pouches under the on! brand; and e-vapor products under the NJOY ACE brand.
Read More - Current Price
- $54.44
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 3 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $51.33 (5.7% Downside)
#4 - Rio Tinto Group (NYSE:RIO)
Mining stocks are cyclical stocks that can be good or bad investments for growth investors based on the price of the underlying commodity. That's the case with Rio Tinto Group (NYSE: RIO), which is the world's second-largest miner.
Rio Tinto mines many of the critical metals and minerals that the world needs, particularly as the shift to lower carbon takes place. This list includes iron ore, aluminum, copper, and lithium, all of which are needed in applications like steel, solar, wind, and electric vehicle manufacturing, just to name a few. And the Biden administration's recent proposal to impose tariffs on Chinese steel could be an additional catalyst.
In 2024, analysts have a Moderate Buy rating on RIO stock with a consensus price target of $72, which gives the stock a 7.7% upside from its April 22, 2024 price. The company also pays a dividend with a current yield of 7.67%, representing only 37% of the company's cash flow.
About Rio Tinto Group
Rio Tinto Group engages in exploring, mining, and processing mineral resources worldwide. The company operates through Iron Ore, Aluminium, Copper, and Minerals Segments. The Iron Ore segment engages in the iron ore mining, and salt and gypsum production in Western Australia. The Aluminum segment is involved in bauxite mining; alumina refining; and aluminium smelting.
Read More - Current Price
- $61.20
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#5 - United Parcel Service (NYSE:UPS)
United Parcel Service Inc. (NYSE: UPS) is a pick for growth and value. The company that makes up a duopoly with FedEx Corporation (NYSE: FDX) undertook major cost-cutting initiatives in 2023 as e-commerce normalizes.
But normalizing doesn't mean no growth. Those initiatives are beginning to show up in the company's margins. That efficiency will set the company up for growing earnings, which are still lagging on a year-over-year (YOY) basis but are expected to grow 16.6% in the next 12 months. This will be particularly true if the Federal Reserve cuts interest rates even once in 2024.
That will help boost the UPS stock price, but that's only one side of the equation. The company also pays an attractive dividend. The yield of 4.49% is slightly lower than the 2-year Treasury note, but it's still one of the best high-yield stocks investors can own.
About United Parcel Service
United Parcel Service, Inc, a package delivery company, provides transportation and delivery, distribution, contract logistics, ocean freight, airfreight, customs brokerage, and insurance services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of express letters, documents, small packages, and palletized freight through air and ground services in the United States.
Read More - Current Price
- $130.17
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $151.52 (16.4% Upside)
#6 - Bristol-Myers Squibb (NYSE:BMY)
The big news in the biopharmaceutical industry has come from weight-loss drug manufacturers such as Novo Nordisk A/S (NYSE: NVO) and Eli Lilly and Company (NYSE: LLY). However, with both stocks near 52-week highs, The Bristol-Myers Squibb Company (NYSE: BMY) is an attractive option.
The company is a leader in chimeric antigen receptor (CAR) T cell therapy and is the only company with two approved CAR T treatments for two distinct targets. And the company is just getting started. On April 22, 2024, Bristol-Myers announced a $380 million worldwide capacity reservation and supply agreement to manufacture CAR T cell therapies. The partnership aims to bring the promise of cell therapy to more patients faster.
BMY stock is down about 30% in the last 12 months despite YOY earnings growth. That's a discrepancy that you can use to your advantage. Plus, the company pays a reliable dividend with a 4.85% yield and is part of the Dividend Achievers club, which includes companies that have increased its dividend for at least 10 consecutive years.
About Bristol-Myers Squibb
Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases. The company's products include Eliquis for reduction in risk of stroke/systemic embolism in non-valvular atrial fibrillation, and for the treatment of DVT/PE; Opdivo for various anti-cancer indications, including bladder, blood, CRC, head and neck, RCC, HCC, lung, melanoma, MPM, stomach and esophageal cancer; Pomalyst/Imnovid for multiple myeloma; Orencia for active rheumatoid arthritis and psoriatic arthritis; and Sprycel for the treatment of Philadelphia chromosome-positive chronic myeloid leukemia.
Read More - Current Price
- $59.02
- Consensus Rating
- Reduce
- Ratings Breakdown
- 1 Buy Ratings, 13 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $54.07 (8.4% Downside)
#7 - Extra Space Storage (EXR) (NYSE:EXR)
Dividend stocks and real estate investment trusts (REITs) go together like peanut butter and jelly. That's because REITs are required to pay up to 90% of their earnings to investors in the form of dividends. However, many investments having to do with real estate can be volatile. And Extra Space Storage Inc. (NYSE: EXR) was no exception.
Extra Space Storage owns and operates over 3,700 self-storage stores in 42 states and the District of Columbia. Revenue hasn't been the problem. In the first quarter of 2024, the company posted 58% YOY revenue growth.
Earnings have been a different story, and that continues to weigh on EXR stock, which has been down 11.9% in the last 12 months, and that's after a 21% increase in the stock price in the last six months. However, the recent stock price growth suggests analysts are warming up to the stock. The consensus price target is $155.50, which would give the stock a 16.8% upside, and you get a dividend with a 4.88% yield.
About Extra Space Storage
Extra Space Storage Inc, headquartered in Salt Lake City, Utah, is a self-administered and self-managed REIT and a member of the S&P 500. As of December 31, 2023, the Company owned and/or operated 3,714 self-storage stores in 42 states and Washington, DC The Company's stores comprise approximately 2.6 million units and approximately 283.0 million square feet of rentable space operating under the Extra Space, Life Storage and Storage Express brands.
Read More - Current Price
- $162.56
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $171.50 (5.5% Upside)
In volatile markets, dividend stocks can be a safe-haven asset for investors who are prioritizing income over growth. What these companies lack in sizzle, they make up for in predictable payouts that, as explained in the introduction, can outpace the yield they get in other fixed-income assets.
And what makes high-yield dividend stocks attractive now is that you're getting the best of the best. When interest rates were near zero, a dividend yield of 2.5% could be considered a high yield. However, with interest rates much closer to historically normal levels, the companies that pay truly high-yield dividends have a chance to stand out.
Remember that dividend yield is only one measure of a quality dividend. In some cases, a high dividend yield may point to trouble in the company's underlying financials. That's not the case with the companies in this report.
However, this list is just a sampling of high-yield dividend stocks. For a more complete list, MarketBeat has several free tools available. Among the best is the Dividend Screener. This tool allows you to filter dividend stocks based on criteria including dividend yield, market cap, market sector, and annual dividend payout.
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