Those looking to generate regular, predictable income typically turn to stocks that pay generous dividends. It's important to remember, as the saying goes, that "all that glitters is not gold." While a high yield will ensure a fat check, that should never be the sole consideration. A long history of payments, regular increases, and a low payout ratio should all be considered.
With those factors in mind, we asked three Fool.com contributors to choose solid income payers with yields over 4%. Read on to find out why they chose AT&T (NYSE:T), Anheuser-Busch InBev (NYSE:BUD) and Verizon (NYSE:VZ) (NYSE:VZA).
This ain't your grandparents' Ma Bell
Danny Vena (AT&T): It's no secret that the media landscape is in the midst of a seismic shift. Streaming video has succeeded in disrupting both the linear TV and traditional cable models, and companies are racing to adapt. The wireless industry is facing challenges of its own, with increasingly cutthroat competition for a finite number or customers, and is likewise looking for ways to boost its growth. This changing paradigm has led many to conclude that the marriage of content and delivery gives these companies a path to prosperity.
AT&T struggled last year with declining subscriber rates in both its postpaid wireless segment and its DirecTV satellite television service. The company recently completed its acquisition of Time Warner, which brings with it content from Warner Bros. Studios and DC Comics, and a host of television and cable channels, including CNN, TNT, TBS, and the Cartoon Network. Most important, it adds HBO and its 142 million subscribers to the mix.
This merger provided AT&T a multitude of new customers, while gaining valuable content to add to its delivery systems, and opens up a number of opportunities for the company. The obvious one is to use the content -- like HBO -- as an incentive for customers to subscribe to the company's broadband, cable, and wireless bundles. AT&T is also rolling out 5G -- the next generation of wireless -- later this year, which will likely give its business a boost.
The uncertainties related to the merger and AT&T's ability to capitalize on its newly acquired assets, and questions about the appeal of the deal mounted by the Justice Department, have pressured the stock and pushed the yield to a juicy 6%. The company only pays out 38% of its profits to fund the dividend, and AT&T has raised its payout every year for the past 34 years, landing the company on the vaunted list of Dividend Aristocrats.
With its above-average yield, a long history of payments, and room to grow, investors may want to take a closer look at AT&T.
This Bud's for your portfolio
Leo Sun (Anheuser-Busch InBev): Anheuser-Busch InBev, the world's biggest brewer, was formed from the mergers of Interbrew, AmBev, Anheuser-Busch, and SABMiller. Its massive portfolio of drinks includes Budweiser, Michelob, Stella Artois, Foster's, Cass, and Hoegaarden, as well as craft beers like Karbach, Goose Island, Blue Point, Elysian, and Golden Road.
InBev faces certain headwinds, like softer sales of beer caused by a market shift toward spirits, the growth of local craft beer brands, higher commodity costs, and unpredictable forex impacts. Those challenges make InBev's growth seem glacial -- its sales are expected to stay nearly flat this year and rise less than 4% next year.
However, InBev is also generating cost-cutting synergies from its takeover of SABMiller in 2016. The company is also focusing on the "premiumization" of its higher-end brands to boost its sales and margins. As a result, InBev's earnings are expected to grow 12% this year and 17% next year. That's a solid growth rate for a stock that trades at less than 19 times forward earnings.
InBev pays a forward dividend yield of 4.8%. The company pays semiannual dividends, and it's raised its payout every year for eight straight years. It spent about 70% of its free cash flow on its dividend over the past 12 months, so it has plenty of room for future hikes.
The next wireless evolution is just around the corner
Chris Neiger (Verizon): The wireless industry has seen its fair share of competition over the past few years. But telecom veteran Verizon Communications has managed to not only remain the largest carrier in the U.S., but still deliver the most consistent and reliable wireless signals as well -- which is why it's won the RootMetrics No. 1 overall network award 10 times running.
The company took a few stumbles in the recent past, as it was late to the game in offering unlimited data plans, but Verizon has since recovered. The carrier added 531,000 postpaid subscribers in the most recent quarter and revenue ticked up 5.4% from the year-ago quarter. Some investors may not be all that impressed with the company's modest sales growth, but keep in mind that Verizon is a large telecom company, not a small-growth stock, and much of its investment value comes from its generous 4.3% dividend yield, which it's raised for 11 straight years.
Income investors will also be pleased to know that Verizon has a very low payout ratio of just 31%, which gives the company plenty of room to continue raising its dividend for years to come.
One of the great things about this dividend play -- aside from its hefty yield -- is the fact that Verizon still has an opportunity to significantly grow its business from the emerging 5G wireless market. 5G is the next evolution in wireless and fixed broadband technology, and it has the potential to bring many more devices online through the Internet of Things and will allow for faster speeds for mobile devices.
Verizon is only beginning to test and build its 5G network -- as are most of the major carriers -- but the company has a tremendous opportunity in the space. The global 5G market will be worth $251 billion by 2025, and the carriers that launch their 5G networks first are likely to remain the biggest winners for years to come, just as Verizon was when it was an early adopter of 4G technologies. With the company's 5G opportunity, its current lead in the U.S. wireless carrier industry, and its generous dividend yield of 4.3%, Verizon looks like a great bet for income investors for years to come.
Chris Neiger has no position in any of the stocks mentioned. Danny Vena has the following options: long January 2019 $110 calls on Anheuser-Busch InBev NV. Leo Sun owns shares of AT&T. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.