Dividends offer a great way to supplement your regular income. The extra earnings can make a huge difference when retirement rolls around and work isn't the priority it once was. To make that a reality, though, investors need to focus on dividend stocks that can reliably pay them each year without issue.
Let's check out five dividend stocks that can help fulfill that income promise. Each of them faces some headwinds that caused their yields to shoot up, but there are solid reasons why each of these stocks should certainly be on your radar.
AT&T
With 36 consecutive years of dividend growth, telecom and media giant AT&T (T -1.37%) is a top dividend stock offering a massive 7.7% yield right now. Indeed, the company's long streak of dividend growth has been supported by consistent revenue and income growth.
T Revenue (Annual YoY Growth) data by YCharts
A key reason behind AT&T's survival in a constantly evolving telecom and media space is the company's ability to reinvent itself with changing times.
Surely, with cord cutting set to reach record levels this year, AT&T's DirecTV acquisition looks like a bigger mistake than earlier thought. A bleak outlook for the cable industry is a key factor affecting AT&T stock currently.
However, the rollout of 5G networks should provide a boost to the company's wireless earnings. Another promising growth avenue for AT&T is its streaming service, including HBO Max. Though AT&T may not be as nimble as some of its smaller rivals, such as Netflix , its scale and deep pockets give it an edge. HBO and HBO Max subscribers rose from 34.6 million at the end of 2019 to 36.3 million at the end of second quarter this year. Earnings from AT&T's streaming and wireless businesses should not only offset its losses from pay TV, but also provide the company a steady growth avenue. This makes its attractive dividend yield looks relatively safe.
ExxonMobil
ExxonMobil (XOM 0.23%) stock's 10%+ yield reflects the significant headwinds that this oil major faces today. With oil prices hovering around $40 per barrel, it may be years before the company can put itself together again. High debt levels, massive capital plans, and shrunk cash flows have put the company's dividends at risk.
Image source: Getty Images.
On the positive side, ExxonMobil stock has fallen to roughly half of its price compared to the start of 2020. That offers an attractive entry point. The stock may slump further if it cuts its dividend. However, it should regain slowly if the company uses the cash to reduce some of its debt load. In the long run, a focus on low-cost production is what will likely pave the path for ExxonMobil's growth. Patient long-term investors should watch how ExxonMobil moves from here on.
Altria
Being in an industry that's experiencing secular volume declines, Altria (MO 1.45%) stock doesn't offer explosive growth opportunities. What it does offer, however, is a rich income stream. Altria has increased its dividends 55 times in the past 51 years. Its dividend yield has risen significantly to around 8.6% from its 10-year average of nearly 5%.
MO Dividend Yield data by YCharts
Despite falling adult smoking rates, Altria has managed to grow its earnings thanks to the addictive nature of its products, its pricing power, and strong brands. In addition to dividend increases, the company has been returning value to its shareholders through regular share repurchases.
MO Average Diluted Shares Outstanding (Annual) data by YCharts
Altria's investment in Juul Labs cost the company billions and is a key reason behind the stock's steady fall over the last couple of years. However, Phillip Morris' (PM -2.96%) tobacco device IQOS has a strong potential to support Altria's sales. For starters, Altria has a licensing agreement with Phillip Morris to market IQOS in the U.S. IQOS could easily fill the gap created due to the potential health effects of vaping.
Kinder Morgan
Midstream operator Kinder Morgan (KMI -0.05%) presents an interesting opportunity for income investors. The stock is trading at an attractive yield of around 8%. Mainly involved in moving natural gas and gas liquids, Kinder Morgan is comparatively better protected from near-term commodity price fluctuations than other parts of the oil & gas value chain. That's why the company expects a mere 10% reduction in its 2020 distributable cash flow due to the pandemic.
T Dividend Yield data by YCharts
After increasing its dividend by 5% this year, Kinder Morgan hopes to raise its dividends again next year. In the long term, the U.S. Energy Information Administration projects modest yet steady growth for U.S. natural gas production up to 2025. This bodes well for the pipeline operator.
Phillips 66
Phillips 66 (PSX -0.35%) is another oil stock that has fallen to nearly half of its price from the start of the year. Though the company faced coronavirus-related effects in the second quarter, its performance should improve in the third quarter.
On the flip side, refining margins remain under pressure, directly affecting refiners' earnings. High inventory levels for refined products, coupled with lower demand compared to pre-pandemic levels, are putting pressure on refining margins. In Europe, a second wave of COVID-19 is threatening the fragile recovery in demand. Similarly, gasoline and diesel demand in Asia hasn't recovered to pre-pandemic levels.
With access to low-cost Canadian crude inputs, and a strong balance sheet, Phillips 66 is well-placed to weather the oil market challenges. However, squeezed margins may linger longer, delaying the stock's recovery. Nonetheless, Phillips 66's dividend looks like it's on solid footing.
