If you want both current portfolio income and the chance at long-term growth, then dividend stocks should get the bulk of your attention. Smart investors seek out opportunities among high-yielding dividend stocks that can bounce back from setbacks or keep up their positive momentum in the future. General Electric (GE 1.44%), British American Tobacco (BTI 1.24%), and Rio Tinto (RIO 0.34%) all have dividend yields that exceed 3%, and each one is in an interesting situation that could bring long-term rewards to shareholders.
Getting the lights back on again at GE
General Electric has faced some major struggles recently, but its high dividend yield and prospects for future growth make it worth a closer look. The conglomerate resolved after the financial crisis to return to its industrial roots, giving up on its previous strategy that had emphasized the profit potential of the financial services business. However, General Electric's moves to boost its exposure to the energy sector led to difficulties when crude oil prices fell sharply in 2015, and even though GE has doubled down with the recent acquisition of Baker Hughes, energy hasn't yet bounced back. Other industrial areas also haven't met their potential, such as the power business.
Yet new CEO John Flannery has ideas for how to reinvent General Electric, and they're likely to focus on building up greater exposure to areas of strength, such as healthcare, aerospace, remote connectivity, and renewable energy. In the meantime, investors will get a dividend yield that's just shy of 4%, and GE has doubled its quarterly payout since 2010. The conglomerate has faced tough times before and emerged stronger, and General Electric has the potential to do so again.
Image source: General Electric.
British American goes global
British American Tobacco isn't a household name among many investors, but it just bought itself into one of the most lucrative industries in the U.S. economy. The tobacco giant recently completed its takeover of Reynolds American, uniting the U.S. and global distribution of popular cigarette brands like Newport and Camel and taking over Reynolds' No. 2 position in the U.S. cigarette market. Although the secular decline in smoking has continued, BAT has worked hard to gain a presence in the budding next-generation alternative products category, which includes both e-vapor and electronic cigarette platforms as well as heated-tobacco products.
As a British company, BAT follows the standard practice of making two semi-annual dividend payments of different sizes each year. Looking back over the past 12 months, that has given shareholders a 3.6% yield. With Reynolds American's portfolio now fully integrated into the company and with the British pound rebounding from Brexit-related pressure, British American Tobacco will strive to adapt to changing industry conditions while keeping its spirit of innovation as one of its biggest assets.
Rio Tinto shines
Finally, Rio Tinto has enjoyed extremely strong performance recently, putting it on the radar screens of many momentum-based investors. The mining giant suffered greatly in past years when commodity markets were down sharply, but so far in 2017, the prospects for key metals like iron ore have improved dramatically, and the result has been a massive rebound in Rio Tinto stock. At the same time, the company has worked hard to cut internal costs, pay down debt, and emphasize its strongest core operations while selling off assets that aren't central to its overall mission.
Rio Tinto also makes unequal semiannual dividend payments, but they've been ample recently. The stock's dividend yield amounts to 4.9% over the past 12 months, and if commodity prices keep acting favorably, then the mining giant's stock should have further to rise, adding to total returns for those investors willing to assume the risks of the mining industry.
In assessing dividend stocks, it's important to look beyond yield and see how their businesses are likely to perform. Rio Tinto, British American Tobacco, and General Electric all have challenges ahead of them, but they also have a proven track record of overcoming similar obstacles and coming out on top.
