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These 3 High-Yield Dividend Stocks Are Too Cheap to Ignore After the Coronavirus Crash

By Jeremy Bowman - Mar 1, 2020 at 11:45AM

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Income investors may want to capitalize on these flash sales.

Last week was a difficult one for investors. The S&P 500 index fell more than 11%, and all three major indexes are now in correction, tumbling more than 10% from their all-time highs in just six days. That's the fastest that's ever happened in market history.

However, long-term investors know that such sell-offs present golden opportunities to pick up stocks at a discount. While no one knows what will happen with the COVID-19 coronavirus or how long the sell-off will endure, what is clear is that a number of otherwise strong stocks now seem to offer investors appealing entry points.

Earlier, I spotlighted three stocks I was interested in buying on an extended sell-off from the coronavirus outbreak. Now, let's take a look at three high-yield dividend stocks whose yields have jumped during the recent market panic.

The stock pages in a newspaper

Image source: Getty Images.

1. Macy's

While it's true that Macy's (M -6.81%) has become something of a whipping boy in the retail industry as shares of the venerable department store chain have fallen sharply in recent years, Macy's dividend looks comfortably safe, and after last week, it offers a whopping yield of 11.5%.

In fact, Macy's stock was actually rising on Friday, bucking the broader trend in the market, a sign that investors believe the stock may be oversold.

Macy's payout ratio, or the percentage of its profits that go to its dividend, is still well below the 80% range that's generally considered a reasonable threshold for mature companies. The retailer pays $1.51 per share in dividends annually and had an adjusted profit of $2.91 per share, giving it a payout ratio of just 52%. For 2020, it expects earnings per share (EPS) of $2.45 to $2.65, and calls for $2.50 to $3.00 in EPS by 2022 a part of its three-year turnaround plan.

While Macy's is likely to experience some coronavirus-related headwinds like much of the retail industry -- including supply chain disruptions and a decline in international tourism, as the company noted on a recent earnings call -- it has a unique strength that gives investors and its dividend an extra level of security. Macy's is sitting on billions of dollars of property; it owns stores in valuable downtown locations in cities like New York, Chicago, and San Francisco. At one point, its real estate portfolio was valued at as much as $21 billion by Starboard Value, an activist investor.  Macy's has begun monetizing its real estate by selling off some of it and forging development partnerships for upper floors in some stores, but it still has plenty of valuable property left. For example, its Herald Square flagship in New York is valued at $3 billion to $4 billion.  Today, the company's market cap is just $4 billion, though it also carries close to $4 billion in net debt.

In other words, the stock looks undervalued for its bevy of real estate, and that should ensure that its 11.5% yield is safe.

2. Altria

Nearly every stock has fallen over the past week, as COVID-19 threatens a broad range of industries. It's disrupted manufacturing in China, caused a number of high-profile events to be canceled around the world, and rained uncertainty on the global economy.

However, one industry seems nearly impervious to the coronavirus threat -- tobacco. It's a recession-proof industry, as smokers tend to smoke regardless of the broader economic climate, and for Altria (MO -1.15%), the U.S.-based company that sells product domestically following its split 12 years ago from Philip Morris, there's essentially no exposure to China or Asia. Of course, there could be some impact to distribution and sales in the U.S. if the recent outbreak in the U.S. worsens.

The company primarily manufactures its tobacco products at its Richmond, Virginia facility and sells almost all of its product inside the U.S. 

The stock has lost nearly half of its value over the last three years on concerns about its ability to transition to next-gen smokeless products. Its investment in JUUL, the leading vape company, has been hammered by government crackdowns on flavored vapes, and its investment in grower Cronos Group has yet to produce significant results.

Altria shares are down more than 11%, but the company remains a cash machine since tobacco is a highly profitable business. Today, it offers a dividend yield of 8%. Its payout remains secure, though its payout ratio is at 80%, and the company is a type of Dividend Aristocrat known as a Dividend King, having raised its payout annually for 50 consecutive years. Though increases may be small in the near future, that should give investors further assurance of the dividend's sustainability.

3. Cedar Fair

One sector that has taken a surprising hit from the outbreak is theme parks. Disney shares have tumbled as the company has been forced to shutter all of its parks in Asia,  but even domestic operators have been feeling the impact of the virus scare.

Cedar Fair (FUN -2.86%), a regional theme park operator best known for Cedar Point in Ohio, saw its stock fall 14% last week, though its shares also gained on Friday, a sign that the stock may have been oversold earlier.

Since most of its parks are in cold-weather climates, Cedar Fair is a highly seasonal business. Essentially all of its profits come during the third quarter when the weather is warmest and kids are out of school. That's several months from now, and the state of the coronavirus outbreak in the U.S. is impossible to predict then. However, in China the spread of COVID-19 has slowed over the past couple weeks, and life has begun to return to normal a little more than a month after the virus forced parts of the country into a lockdown.

Cedar Fair currently offers a dividend yield of 8.2%, however, this dividend looks less reliable than the two above. Based on its earnings per share and free cash flow, the company cannot currently fund its dividend out of profits and will be forced to borrow money to sustain it if this pattern continues. In 2019, it paid dividends of $3.74 a share and made a profit of $3.03 a share, giving it a payout ratio of 123%. 

However, the company is growing, with revenue up 9% last year and same-park sales up 6%. Management also said that early season-pass sales are up more than 40%, a bullish sign for the stock. If the coronavirus outbreak turns out not to be a threat this summer and performance improves, now could turn out to have been a prime opportunity to scoop up some Cedar Fair stock.

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Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$41.24 (-1.15%) $0.48
Macy's, Inc. Stock Quote
Macy's, Inc.
M
$17.52 (-6.81%) $-1.28
Cedar Fair, L.P. Stock Quote
Cedar Fair, L.P.
FUN
$45.83 (-2.86%) $-1.35
Cronos Group Stock Quote
Cronos Group
CRON
$3.00 (1.18%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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