Looking for high yields is one of the hallmarks of many dividend investors. Focusing solely on a stock's payout, however, can get you in trouble if the company isn't healthy enough to sustain its dividend for the long haul. Accordingly, it makes sense to focus your attention on those dividend stocks that have histories of both healthy yields and strong fundamental performance. Below, we'll take a closer look at a few dividend stocks that yield 4% or more and good prospects for future growth over time.
The mobile revolution transformed the telecommunications industry forever. In the old days, companies like Verizon Communications (NYSE:VZ) were considered to be utilities, taking advantage of regulated revenue for providing landline telephone service. Since then, though, Verizon has been able to get a lot more revenue from the competitive market for wireless services, and it hasn't been afraid to make huge investments in order to build out what many consider to be the best network in the business within the U.S. market.
Verizon currently yields 4.2%, and the telecom has done a good job of gradually raising its dividend over time. For more than a decade, Verizon has given investors at least one dividend increase every year. Its most recent boost came last October, and although the 3% rise was relatively small, Verizon pays out only about half of its earnings to investors through dividends. That gives dividend investors a margin of safety in case of a slowdown in the industry, and that gives Verizon an edge over some of its more aggressive dividend-paying peers among telecom companies.
As you would expect, energy stocks have been sensitive to oil price movements, and Chevron (NYSE:CVX) has responded negatively to the plunge in crude prices over the past year and a half. As an integrated major oil company, Chevron has extensive production capabilities that generate the most profits when prices are high.
The concern that many have about Chevron is that its earnings have taken multiple hits due to the need to take impairment charges against its energy reserves. Yet now that oil prices are starting to move higher, investors have seen Chevron stock start to rebound. Moreover, the company has already sold off some of its refinery assets and is looking for additional sales in order to take advantage of extremely favorable conditions in refining. That will generate cash proceeds for use elsewhere in the business.
Chevron yields 4.2% and has a 28-year streak of paying higher amounts of dividends each year. Yet its last increase came in 2014, making it essential that Chevron raise its payout sometime during this year to remain a Dividend Aristocrat. With the likelihood of at least a token dividend raise coming, investors should see now as a good time to take a closer look at Chevron.
At the other end of the earnings spectrum is Ford (NYSE:F). The automaker has enjoyed record sales last year, and strong conditions have persisted into 2016 as well. That puts the company's earnings multiple at just 6, and investors expect Ford's earnings to continue to grow not only this year but in 2017 as well. A turnaround in Europe has dramatically improved Ford's growth prospects, and new models are focused on taking advantage of private retail, fleet, and commercial vehicle sales with the variety and features that buyers want.
Ford currently yields 4.5%, and the company hasn't raised its regular dividend payment since early 2015. However, Ford did reward shareholders with a special $0.25 per share dividend early this year, and that isn't included in the 4.5% yield calculation above. The automaker's willingness to share its outsized profits with investors through dividends bodes well for its future prospects, especially since the current dividend represents only a 30% payout ratio based on most recent earnings.
With many dividend stocks, the higher the yield, the more careful you should be. However, in some cases, healthy dividend yields are just part of a broader, balanced value proposition. With these three stocks, dividend investors can be comfortable that they'll get current income and a chance at long-term growth as well.
Dan Caplinger owns shares of Ford. The Motley Fool owns shares of and recommends Chevron, Ford, and Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.