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3 Dividend Stocks That Pay You More Than Exxon Does

By Keith Noonan, Jeremy Bowman, and George Budwell – Updated Dec 12, 2018 at 8:48AM

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Looking for big yield? ExxonMobil has it, but these three stocks should also be on your radar.

ExxonMobil offers investors a chunky 4.2% yield backed by a business that's built around a product that powers the world. That said, there are other stocks that offer even bigger yields for income investors looking for investments that can maximize their payouts, and it's worth surveying the field to get a sense of which companies are best aligned with your investment goals.

With that in mind, we asked three Motley Fool contributors to spotlight a stock that offers a yield that comes in well above Exxon's. Read on to get a better look at whether GlaxoSmithKline (GSK 2.01%), Altria (MO 1.61%), and AT&T (T 1.68%) might be good fits for your income-focused portfolio.

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A dividend champ 

Jeremy Bowman (Altria): With a 4.2% dividend yield, Exxon is hard to beat. The energy sector is well known for offering ample dividends, but another industry that income investors may want to consider is tobacco. Altria, the domestic manufacturer of Marlboro and brands like Parliament and Virginia Slims, currently offers a 5.8% dividend yield and is a Dividend Aristocrat, having increased its dividend 52 times in the last 49 years.  

The stock has fallen 22% this year as tobacco stocks are widely down this year on concerns about Philip Morris International's challenges with its iQOS product in Japan, and concerns of an FDA crackdown on menthol cigarettes and flavored vapes in the U.S. While tobacco investors should pay attention to those developments, Altria's core business is still highly profitable, with operating margins around 50%. 

Beyond cigarettes, the company is also making moves to diversify into growth segments like marijuana and e-cigarettes. Altria recently announced that it had made a $1.8 billion investment in marijuana grower Cronos Group, good for a 45% stake, and reports suggest it may also take a significant minority stake in JUUL, the leading e-cigarette maker. 

Both moves seem like a natural extension of Altria's capabilities in production, marketing, and distribution, and follow a similar playbook to beverage giants like Coca-Cola and Anheuser Busch, which have acquired faster-growing beverage companies as soda and legacy beer sales have declined. Altria has an opportunity to do the same with products like marijuana and e-cigarettes, and investors can enjoy a 6% dividend yield in the meantime as the company starts to make that pivot.

A risky high-yield play in pharma

George Budwell (GlaxoSmithKline): GlaxoSmithKline's $5.1 billion buyout of oncology specialist Tesaro this week hasn't been kind to its valuation. Specifically, the British pharma giant's market cap has dropped by over $6 billion since this acquisition became public knowledge only a few days ago.

While the merits of this pricey takeover are certainly debatable, there is a sliver lining for income investors. Namely, Glaxo's dividend yield has now surpassed even that of ExxonMobil Corporation (5.2% vs 4.2%) in the wake of this dramatic sell-off. Best part of all, Glaxo -- as part of its slide deck highlighting the terms and rationale for this acquisition -- announced that it plans on sticking with its current dividend payout for 2018.

That declaration should come as a big relief for investors holding this stock purely for income reasons. Glaxo, after all, sports a jaw-dropping payout ratio of 212% at the moment, and it had to perform a delicate balancing act by selling other assets in order to pull off this acquisition. Put simply, Glaxo easily could have chosen to suspend its dividend as part of this takeover of Tesaro and no one would have been all that surprised. 

Is Glaxo's stock worth owning for its ginormous yield? Even though the drugmaker's yield somehow survived this latest strategic move, Glaxo is probably going to have to rethink its dividend policy soon. After all, this Tesaro acquisition isn't expected to positively impact its top line or free cash flows anytime soon. So, while Glaxo's sky-high dividend may be tempting, investors should brace themselves for a reduction perhaps as soon as the first half of 2019.   

Big yield at a cheap price

Keith Noonan (AT&T): With its yield coming in at roughly 6.6% and a fantastic history of regular payout increases, AT&T stands out as the most attractive major telecom stock for yield-focused investors. The company has raised its payout annually for 33 years running, and that streak will likely climb to 34 in the very near future. So shareholders can look forward to shares purchased today sporting even bigger yield down the line.

But investors probably shouldn't count on big dividend growth going forward, given that the company has a sizable debt load and recently acquired Time Warner at an $85 billion price, but management will want to keep that impressive payout growth alive in order to keep shareholders happy. It's a good thing that the company's payout is well covered on both the earnings and free cash flow fronts. Shareholders have come to expect regular dividend growth as a core component of stock ownership, and considering some of the challenges AT&T has faced in recent years, its returned-income component is more important than ever.

The company's stock has declined more than 20% year to date and is down roughly 13% over the last five years, as price and feature wars in the already competitive mobile service space have heated up, and its acquisition of DirecTV in 2015 has been followed by declining subscribers at the business due to cord-cutting. That said, shares are now priced at just 8.5 times this year's earnings -- a level that looks cheap when considering the company's big dividend; large customer base and solid brands; and potential to benefit from 5G, the Internet of Things, and its integration of Time Warner. For income-focused investors, AT&T is a worthwhile portfolio addition.

George Budwell has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. Keith Noonan owns shares of AT&T. The Motley Fool owns shares of and recommends GlaxoSmithKline. The Motley Fool has a disclosure policy.

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