Money-market funds and Treasury bills have long been considered safe investment options with moderate returns. However, there is another investment avenue that offers higher yields while still being attractively priced. These stocks not only surpass the 5.4% yield on T-bills but also trade for less than 10 times the projected 2023 earnings per share.
The Top High-Yielders in the S&P 500
Among the stocks listed on the S&P 500, six of them stand out due to their impressive yields. These companies are Altria (ticker: MO), Verizon Communications (VZ), AT&T (T), KeyCorp (KEY), Truist Financial (TFC), and Walgreen Boots Alliance (WBA). Unfortunately, all six stocks have experienced a decline in value this year, with Key, Truist, and Walgreens being hit the hardest, down by over 25%.
To put things into perspective, Altria currently boasts a remarkable yield of 8.8%, while Verizon and AT&T follow closely behind with 7.9%. KeyCorp, Truist Financial, and Walgreen have yields of 7.5% and 7.3%, respectively. These stocks are the only ones in the S&P 500 that offer yields exceeding 7%.
Balancing Yield and Risk
It’s important to note that such high yields come with a level of risk. However, the good news is that all six companies have sufficient earnings to comfortably cover their dividends. Moreover, the company managements remain committed to maintaining these payouts.
For instance, Altria is currently trading around $43 per share, which is approximately nine times the projected 2023 earnings of $5 per share. Despite concerns about declining sales volume and profitability in its core cigarette business, Altria takes its generous dividend seriously. As the company transitions towards smoke-free products, it aims to increase the dividend at a mid-single-digit annual rate.
A Conducive Environment for Dividend Boosts
Altria typically increases its dividend payout in August, meaning a dividend boost could be just around the corner. According to Bloomberg consensus, there are expectations of a quarterly payout increase from 94 cents to 98 cents this month.
Investing in high-yield stocks like these offers an enticing alternative to conventional investment options. While the potential risks should not be overlooked, the attractive valuations and commitment to dividend payouts make these stocks worthy of consideration for investors seeking a balance between income and growth potential.
AT&T and Verizon: Facing Challenges and Potential Liabilities
AT&T and Verizon, with shares priced around $14 and $33 respectively, have experienced a decline of over 15% this year. There are two primary factors contributing to this downward trend. Firstly, concerns regarding competitive pressure in the wireless industry have weighed heavily on both companies. Secondly, recent revelations about potential liabilities stemming from lead found in old underground cables have further exacerbated the situation. The Wall Street Journal’s reporting on this issue has highlighted the risks associated with these liabilities.
However, despite these challenges, both AT&T and Verizon maintain that their dividends remain secure. Management echoes this sentiment, with Verizon even mentioning the possibility of dividend increases during their earnings conference call in July.
Regional banks Key and Truist have not been immune to the difficulties faced by their peers in the banking sector. Key shares currently trade around $11, while Truist sits at $34. Disappointing second-quarter earnings evaluations from analysts at KBW have contributed to the decline in these stocks. However, both key players remain committed to prioritizing their dividends. Notably, Truist comfortably covers its dividend payout. Furthermore, these stocks trade for approximately nine times projected 2023 earnings, and both possess robust regional banking franchises.
Pharmacy chain Walgreen has also experienced a challenging year. In June, the company announced a reduction of over 10% in its profit forecast for the 2023 fiscal year, projecting earnings of about $4 per share. This downward revision has led to investor skepticism, causing the stock to trade at a meager seven times the expected earnings for the current fiscal year ending this month.
Despite these setbacks, James Kehoe, Walgreen’s Chief Financial Officer, remains resolute in maintaining the company’s investment-grade credit rating and dividend. Such commitment bodes well for investors seeking stability amid turbulent markets.