Given how interest rates in the U.S. are lingering near multi-decade lows, one would expect dividend yields to be similarly low. And for the most part, they are. The S&P 500's current average dividend yield of 1.55% is as low as it's been since 2002. The environment is simply a tough one for income investors looking to put some idle cash to work.
Not every dividend-paying name is providing payouts that can't even keep up with inflation, however. Altria Group (NYSE:MO), The Williams Companies (NYSE:WMB), and AT&T (NYSE:T) are all dishing out more than 6% dividend yields at their current stock prices, and all three companies are at least healthy enough to maintain their present payouts pace for the foreseeable future.
Here's a closer look at these three above-average dividend-paying stocks.
Dividend yield: 7.2%
Yes, the telecom giant's dealing with more than its fair share of problems, not the least of which is its DIRECTV unit. AT&T is looking to divest at least a piece of the struggling satellite television unit, but it is having trouble finding a buyer at a palatable price. In the meantime, T-Mobile is proving to be a considerable competitor now that it's teamed up with Sprint, augmenting challenges created by the coronavirus pandemic. For the first time since 2005, AT&T elected to not increase its annualized dividend payout at the end of 2020.
It's alarming on the surface, particularly to investors who've historically relied on the company for regular income. Keep things in perspective, though. AT&T neither cut its dividend nor lowered it. It merely skipped an increase headed into 2021, and there's nothing to preclude it from upping that payout at a later date this year.
And the market is overlooking perhaps the most important aspect of all of the telecom company's fiscal condition. That is, AT&T remains a reliable cash cow that can afford to maintain its payout. After adjusting for unusual or one-time expenses, the corporation still earned more per share than it's paying out in the form of dividends over the course of the first three reported quarters of 2020 (despite the effects of COVID-19).
AT&T wasn't forced into skipping a dividend increase. It simply made a strategic choice.
2. Altria Group
Dividend yield: 8.3%
For investors who may not know, Altria Group is the parent to cigarette company Philip Morris, which owns the Marlboro brand. Other subsidiaries include John Middleton, U.S. Smokeless Tobacco, and a wine company called Ste Michelle Wine Estates. Cigarettes, however, still drive the vast majority of Altria's revenue.
That's seemingly a problem. The national and worldwide smoking cessation effort is gaining traction. More than three out of every five U.S. adults who used to smoke have quit, and the percentage of the nation's population that still smokes cigarettes has fallen to multi-decade lows as of 2017, according to the Department of Health and Human Services 2020 report on the matter. Presumably, that proportion is still falling. Altria's market is shrinking, which is the last thing any investor cares to see in a company they own a piece of. For this reason, income-minded investors should be viewing Marlboro's parent company as more of a rental and less of a permanent holding.
But what a dividend holding it is! Altria Group's dividend yield of 8.3% is nothing short of stellar, and after adjusting for the effect of its 2007 spinoff of Philip Morris International, this company has raised its dividend for 51 consecutive years. There's no arguing with its payout pedigree.
That being said, know that Altria is fighting the smoking cessation headwind. Philip Morris USA is an exclusive U.S. licensee of the IQOS system, which heats tobacco without burning it to deliver a safer alternative to smoking. It's not "vaping," technically, but could be viewed in the same vein. This alternative to cigarettes isn't making a major fiscal effect yet for Altria, but it's also only offered in a handful of markets. The company is working on expanding the device's availability, but it views the effort as a 10-year journey. Investors must be patient, but should also be comforted that the company is adapting to the inevitable future.
3. The Williams Companies
Dividend yield: 7.1%
Finally, add The Williams Companies to your list of high-paying dividend stocks to consider.
It's not a household name, but there's a good chance your household has somehow benefited from the service this company provides. Williams owns 30,000 miles of natural gas pipelines spanning a wide swath of the United States. The company says it handles about 30% of the gas consumed within the U.S.
The energy sector was bludgeoned last year, and The Williams Companies was no exception. Shares tumbled more than 50% between February's high and March's low, mirroring the meltdown of oil and gas prices. Investors were simply spooked by the unknowns of the coronavirus contagion. Oil and gas prices as well as Williams' stock price are recovering now, but have yet to reclaim their pre-pandemic highs. Investors are skeptical even if they're no longer terrified.
The market's overlooking a key detail unique to The Williams Companies' role within the energy industry, however. That is, the price of natural gas doesn't dramatically affect demand for it, and this company is simply charging sellers for the amount of gas it transports from point A to point B. As of right now, the company is transporting just as much gas as it was before the contagion took hold. This sort of recurring revenue business model is ideal for making dividend payments -- the cash continues to flow regardless of the environment.
The evidence of this idea lies in the numbers. Williams' adjusted EBITDA through the first three quarters of 2020 is pacing about 1% higher than where that figure was a year earlier, and analysts are calling for significant earnings growth for the yet-to-be-reported fourth quarter too.
Bottom line? The errant sell-off from last year is now being corrected, but the stock's current price still doesn't fully reflect The Williams Companies' fiscal resilience.