What a time it is to be an investor. Years from now, we'll be starting our stories with the words, "Back in 2020..." and we'll instantly remember how volatile things were at the time due to the coronavirus disease 2019 (COVID-19) pandemic.
But amid the chaos, and the surprising outperformance of work-from-home stocks, investors would be wise not to forget about dividend stocks.
To be frank, dividend stocks have not come close to keeping pace with high-growth tech stocks on a year-to-date basis in 2020. Then again, we shouldn't expect them to, since dividend payers are typically time-tested businesses designed to deliver cash flow consistency and income. Though dividend-paying stocks can often be boring, there's beauty and money to be found with most boring businesses.
That's what makes the following three high-yield dividend stocks (i.e., those yielding at least 4% annually) so attractive. If you give these high-income stocks a decade, it's my belief they'll double your money through some combination of their payout and share price appreciation.
Despite the fact that its high-growth days have long been in the rearview mirror, investing in telecom giant AT&T (T 1.27%) continues to be one the safest ways for income-seeking and conservative investors to make a buck. With a yield of 6.9% -- AT&T is a Dividend Aristocrat that's raised its payout for 36 consecutive years -- AT&T can double your money with reinvestment in approximately 10.4 years. This means you'd only need a very small appreciation in AT&T's share price to double your money over the next decade.
Working in AT&T's favor is the fact that it's rolling out the first wireless infrastructure upgrades in about a decade. To be clear, upgrading the company's wireless infrastructure to 5G won't be cheap, nor is it going to happen overnight. But it's an exciting move for the company since it should lead to a multiyear tech upgrade cycle that results in a significant uptick in data usage. Given that data is the margin driver for AT&T's wireless division, this should lead to a shot in the arm of organic growth over the next couple of years.
Don't overlook AT&T's streaming capabilities, either. While it's not exactly lit the world on fire on the streaming front like Disney, AT&T's recently launched HBO Max has more than 10,000 hours of premium content, and its collective streaming offerings have the potential to completely offset the cord-cutting that subsidiary DIRECTV is contending with. AT&T has more than enough cash flow to tinker with its streaming offerings to get its product right for the long run.
Furthermore, AT&T halted its share buyback program earlier this year to account for uncertainties surrounding COVID-19, as well as ensure the continuity of its dividend. The company's projected payout ratio of around 65% in 2020 is right in that sweet spot where a cut is highly unlikely (especially with AT&T continuing to unload noncore assets and reduce its debt), but shareholders are still netting a significant portion of total income.
Philip Morris International
Another high-yield dividend stock that'll give investors an excellent chance to double their money over the next decade is tobacco giant Philip Morris International (PM -0.23%). Currently sporting a robust 6.6% yield, Philip Morris could, with reinvestment, double an individual's initial investment in under 11 years. Similar to AT&T, only very minor share price appreciation would be needed over the next decade to double investor's money.
On one hand, Philip Morris has its traditional tobacco operations. There's no denying that marketing has become more challenging for traditional tobacco products in developed markets, which is a big reason we've witnessed cigarette shipment volumes falling for most tobacco companies. But Philip Morris benefits from the fact that it's geographically diverse, with a presence in more than 180 countries around the world. If certain developed countries are posing a challenge, there are plenty of emerging markets where burgeoning middle classes want simple luxuries like tobacco. Plus, it doesn't hurt that tobacco companies have strong pricing power due to the addictive nature of nicotine.
On the other hand, Philip Morris International has a rapidly growing reduced-risk product (RRP) segment that's highlighted by its IQOS heated tobacco system. In terms of net sales, the company's RRP revenue has jumped from 0.2% in 2015 to nearly 22% in the first quarter of 2020, with IQOS leading the way. The heated tobacco units (HTUs) for the IQOS device accounted for close to 10% of all shipments in Q1 2020, with worldwide shipment volume for HTUs up 45.5%. As IQOS is introduced and branded in new markets, Philip Morris won't have to rely so much on price hikes on traditional tobacco brands to drive growth.
Tobacco stocks may not be the sexy investment they once were, but Philip Morris will still get it done for long-term investors.
Finally, how about a faster-growing high-yield stock that can combine income with share-price appreciation to double investor's money over the next decade?
Semiconductor behemoth Broadcom (AVGO 2.35%), which has raised its quarterly payout by more than 4,500% over the past 10 years to $3.25, is currently yielding 4.1% a year for its shareholders. This means the dividend payout alone, with reinvestment, will get investors a little more than halfway to doubling their money in a decade. If Broadcom can deliver close to a 50% share price return over the next decade -- a figure that I find to be laughably conservative -- it'll double income investor's money.
Behind the Broadcom growth story is none other than the 5G revolution. While AT&T is busy rolling out its wireless infrastructure, Broadcom is preparing for the influx of wireless device upgrades that will follow in the years to come. A considerable portion of Broadcom's sales are based on wireless chips and components used in smartphones. Though COVID-19 could hamper release dates for these new devices in the very short-term, we've witnessed firsthand how strong demand can be when innovation is on display in the tech space.
Broadcom also stands to make a pretty penny by providing access and connectivity solutions to enterprises looking to push into the cloud. Mind you, we were already witnessing a remote work revolution prior to COVID-19. However, the need to social distance has been a shot in the arm for remote work movement. This has only heightened demand for cloud development and data centers to store sensitive information. Broadcom should be able to pivot this growing data storage demand into strong earnings growth for the foreseeable future.