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3 Stocks Cracking the 4% Yield Ceiling

By Rick Munarriz - Mar 30, 2020 at 10:05AM

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These three high-yielding stocks could provide big income and even bigger capital appreciation.

Yields may be falling on fixed income investments, but cascading share prices find stock yields going the other way. There are now plenty of stocks yielding more than 4% that could deliver capital gains along with the healthy trickle of quarterly payouts. 

Altria (MO 0.04%), CenturyLink (LUMN 0.72%), and Hasbro (HAS 2.47%) are some of the high-yielding stocks that have a good chance to bounce back after their recent slides. Let's go over these three stocks that have cracked the 4% yield ceiling. 

A CenturyLink employee in a retail outlet with products on display behind her.

Image source: CenturyLink.

Altria

The Marlboro Man is riding a bucking bronco these days. Tobacco stocks are taboo for some investors, and Altria itself has come under fire for disruptions to its manufacturing facilities as a result of the coronavirus crisis. 

It's against this smoky backdrop that Altria, with its 9.2% yield, stands out. Revenue has actually inched higher for eight consecutive years. The even more impressive streak for income investors is that Altria has come through with 50 years of annual dividend hikes. Recent purchases of minority stakes in e-cigarettes and cannabis companies haven't exactly panned out, but it's a great example of Altria using its cash flow to diversify away from its controversial flagship product. 

CenturyLink

CenturyLink packs the highest yield on this list -- entering the new trading week just above 11% -- but it's also packing the biggest risk. The provider of residential and commercial telco services isn't at its best right now. If Altria has some encouraging revenue and dividend hike streaks going, CenturyLink is going the other way. CenturyLink has posted declines in organic revenue for seven straight years. It's also standing out with its double-digit yield despite cutting its distributions by more than half last year.

Now let's shift to the good news. CenturyLink surprised investors by posting sequential growth in the third quarter of 2019, the first time we've seen that happen since it completed the acquisition of Level 3 more than two years ago. CenturyLink returned to posting a quarter-over-quarter top-line dip in the fourth quarter, but the 3.6% year-over-year decline it posted for both the third and fourth quarters were its kindest organic decreases in more than three years. Investors can also take heart in knowing that normalized earnings per share have actually improved in back-to-back years. Last year's dividend cut hurt, but 2020 was also the first time in 10 years that CenturyLink's normalized earnings were greater than the shareholder distributions.

Hasbro

The lowest of the yields on this list goes to Hasbro, clocking in at 4.1% as of Friday's close. It's been a wild year for investors in the country's leading toymaker, as the yield that started the year out at 2.6% rose all the way up to nearly 6% a week ago before making some of that ground back this past week. 

Hasbro's business took a hit in 2018 when the bankruptcy of Toys R Us provided a double shot of pain. Losing a primary retail customer hurt initially, but full-priced toy sales were hard to come by after that as Toys "R" Us liquidated its inventory. Hasbro has still managed to grow its sales in five of the past six years, with 2018 being the understandable anomaly. 

Hasbro is making smart moves. It has boosted its distributions for 16 straight years, and it's making sure it doesn't stay behind in the new normal by closing on a major media entertainment company that will provide it with the architecture to monetize its existing franchises in new ways. Toys have historically been recession-resistant, making this a compelling stock that isn't likely to have a yield above 4% for long.

There's an art to being a successful dividend investor, but the best trades wind up being those where capital gains also play a major role.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
MO
$45.15 (0.04%) $0.02
Hasbro, Inc. Stock Quote
Hasbro, Inc.
HAS
$80.58 (2.47%) $1.94
Lumen Technologies Stock Quote
Lumen Technologies
LUMN
$11.23 (0.72%) $0.08

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

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