Dividend stocks come in all shapes and sizes: some dividend stocks may be more appropriate for income or safety, while others can give investors access to both quarterly payouts and growth. In any case, everyone should consider having at least one or two high-yield dividend stocks in their portfolio.
Below, three of our analysts share their picks for high-yield stocks everyone should consider buying. See why they recommend AT&T (T 0.04%), General Motors (GM 1.46%), and 8point3 Energy Partners (CAFD +0.00%).
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"Calling" all investors
Danny Vena (AT&T):
While AT&T has been a longtime favorite among income seekers, the company's intriguing possibilities in the future should have all investors taking a second look.
AT&T is a Dividend Aristocrat, having increased its payout for the last 32 years running. It has a current yield of 5.8% and plenty of cash to pays its dividend, though investors might be concerned about the high yield and even higher 93% payout ratio. Over the trailing twelve months, however, the company has produced free cash flow of $16.49 billion, significantly higher than its $12.85 billion in net income, so there's still plenty of cash for dividend payments.
AT&T is currently the second largest US provider of both wireless services and pay TV (via subsidiary DirecTV).
The upcoming marriage with Time Warner Inc. (TWX +0.00%), which controls CNN, TNT, TBS, and HBO, will further diversify its revenue stream and provide content that is becoming more and more valuable in the marketplace. Time Warner also owns DC Comics and Warner Bros. Studios, which are fresh off their success with Wonder Woman and looking forward to the Justice League movie later this month.
Investors took a step back when stories leaked that the U.S. Justice Department was considering a lawsuit to block the planned acquisition of Time Warner. It is important to remember, though, that it is standard practice for the antitrust regulators to simultaneously prepare for a lawsuit while still negotiating terms to win government approval, so nothing has changed there.
The combination could provide significant synergies and growth potential.
A Detroit winner
Daniel Miller (General Motors):
It's incredibly easy to make a bearish case against Detroit's largest automaker. For some investors, plateauing U.S. new vehicle sales are enough to brush GM aside. But that simple bear case doesn't do General Motors justice, especially considering it offers investors a 3.5% yield and is trading at a paltry 7.0 forward price-to-earnings ratio per Morningstar.com earnings estimates.
General Motors is a dividend stock investors should reconsider, because it's no longer the Detroit automaker many investors think of. The automaker is making higher quality vehicles and continues to top Wall Street estimates despite plateauing U.S. light-vehicle sales. GM quietly posted a strong $1.32 earnings per share during the third-quarter, adjusted for one-time items, compared to analysts' estimates calling for $1.13 per share.
But the reason investors should consider GM as a dividend option is simply the change in its management's vision. General Motors plans to launch at least 20 all-electric vehicles by 2023, continues to make investments in innovative companies such as Lyft, and has acquired companies such as Cruise Automation to help drive its leadership in driverless vehicle technology. Sure, GM operates in a cyclical industry, but long-term investors should see an opportunity to own a massive global automaker that has finally proven it can plan for the decades ahead.
A dividend play with a bright future
Jeremy Bowman (8point3 Energy Partners):
The renewable energy sector isn't exactly known for dividends, as the growth companies that typify wind and solar tend to be focused on plowing their capital back into expansion rather than returning it to investors. However, there is a way for investors to get both growth and income: yieldcos like 8point3 Energy Partners. A yieldco is a dividend-paying, growth-oriented company that is created by a parent company in order to generate predictable cash flows for investors.
In this case, 8point3 Energy is a partnership of First Solar (FSLR +5.03%) and SunPower (SPWR +0.00%), two of the biggest solar stocks on the market. 8point3 offers a dividend yield of 7.2%, which is fully funded out of the company' free cash flow.
First Solar is trying to sell its stake in the yieldco, and SunPower may also sell its share, though there seem to be interested buyers in 8point3. In a buyout, the company would likely fetch a premium. That puts investors in a desirable position: they can sit back and collect a 7.2% yield while waiting to capture the upside in a potential buyout.
If a sale doesn't go through, investors can take solace in a steadily rising dividend, which the company expects to increase 12% this year. Either way, investors should benefit.
