There's more to some chunky yields than meets the eye. Folks may invest in dividend stocks largely for the income, but sometimes these equities offer a good shot at capital appreciation, too.
AT&T (T -0.81%), Carnival (CCL -1.43%), and Six Flags Entertainment (SIX -3.49%) all offer yields north of 4% at the moment, but that's not all. The telecom giant, cruise line leader, and amusement park operator also have the potential to deliver overall returns that beat the market.
Image source: Six Flags.
AT&T: 5.2% yield
There are a lot of moving parts to the AT&T story. It's one of the two top carriers in the booming U.S. wireless market, and it's also benefiting from the "content is king" trend thanks to its hard-fought acquisition of Time Warner. But it's swimming against the current when it comes to its legacy wireline business and its DirecTV satellite television service -- both of those platforms continue to shed customers.
However, the ultimate moving part to AT&T these days is the stock itself. The shares are up 37% so far this year, beating the market -- and their total return is 45% once you factor in the company's beefy quarterly distributions. An activist shareholder sparked interest in the telecom over the summer, implying that it was undervalued, which impelled it to announce a three-year deleveraging plan last month under which it will use its free cash flow to gnaw away at its hefty debt and reduce its outstanding share count. AT&T forecasts marginal top-line growth in the coming years, but says its bottom line should explode to produce earnings per share between $4.50 to $4.80 come 2022. With the stock trading at just 8 to 9 times that profit forecast -- and with 35 consecutive years of annual dividend hikes creating a pattern it will be loathe to break -- buying into AT&T seems like a pretty good call here.
Carnival: 4.5%
While AT&T investors have been having a good year, Carnival shareholders have been sailing through choppier waters. The world's largest cruise line operator has been bucking the market's upward trend since February, producing a year-to-date slide of more than 10%. It has trimmed its full-year earnings guidance in each of the past three quarters, blaming everything from weather-related disruptions to rising tensions in the Arabian Gulf for its softening outlook.
The cruising behemoth that was once hoping to earn as much as $4.80 a share this year now expects net income of no more than $4.27 a share. Fluctuations in fuel prices and exchange rates, as well as the U.S. government's policy change on Cuba as a port of call, have been eating away at its financials.
The combination of a sinking price and a steady dividend has resulted in Carnival's yield moving from barely above 4% when the year began to 4.5% now. The good news here is that demand for cruise vacations generally remains strong. Its net revenue yields continue to grow by mid-single-digit percentages, and advance bookings through the first half of fiscal 2020 are ahead of where they were a year earlier. With many of the factors sapping Carnival's bottom line looking like one-off issues, now might be a good time to cruise into the stock.
Six Flags: 7.3%
The fattest dividend yield of these three stocks belongs to an investment that has been on as wild a ride as some of its signature coasters. The stock is down nearly 20% in 2019, and a good chunk of that drop came after its poorly received third-quarter report. Revenue was flattish during the key summer quarter, as attendance gains came mostly from its growing base of annual passholders -- people who don't spend as much in the parks per trip as its more infrequent visitors.
Six Flags has now fallen short of Wall Street's profit targets in back-to-back quarters. It also doesn't help that it was reportedly thwarted in an attempt to acquire a highly esteemed peer in a $4 billion deal. The good news here is that things could start to change for better starting next week, when former PepsiCo (NASDAQ: PEP) exec Mike Spanos becomes the company's new CEO. He will inherit a growing membership base of regulars, and has several months to implement new strategies to woo more of those spendthrift non-passholders before most of Six Flags' parks reopen next spring.
