Please ensure Javascript is enabled for purposes of website accessibility

3 Top Dividend Stocks With Yields Over 4%

By David Jagielski - Feb 13, 2021 at 7:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite the pandemic, these companies are still profitable and reporting strong results.

If you're going to invest in dividend stocks, you want to make it worth your while. The typical S&P 500 stock yields just 1.6%, but there are many other investments out there that yield a whole lot more. But it's important to be careful and not overly aggressive when choosing dividend stocks, as high yields may not last, especially when the economy is not faring so well.

But three stocks that pay you more than 4% today and are safe long-term buys are GlaxoSmithKline (GSK 2.42%)Telus (TU 2.14%), and Southern Company (SO 0.81%). They're profitable companies with strong business models that won't put their payouts at risk. Here's a closer look at why they're worth investing in right now.

Piggy bank sitting on calculator next to change

Image source: Getty Images.

1. GlaxoSmithKline

Drug manufacturer GlaxoSmithKline currently pays investors a top yield of 5.8%, and its payout ratio of 70% looks very manageable. However, with GSK planning to split its business into two -- one will be focused on consumer health and the other on developing drugs -- that picture will change. GlaxoSmithKline has indicated that its aggregate distributions will likely come down from where they are today, but it's unclear how the different dividend rates for the two businesses will look. Given its relatively high payments, there's still plenty of room for a reduction in the dividend and for investors to earn a great yield. The change won't happen until 2022, giving investors time to decide which business to invest in, or whether to hold positions in both companies.

The company is coming off a good year in 2020, as it demonstrated stability during a year full of challenges for the industry. On Feb. 3, GlaxoSmithKline reported its year-end results for 2020, in which revenue totaled GBP$34.1 billion and grew by just over 1%. Although its pharmaceutical and vaccine sales dropped from where they were a year ago, the company's consumer health segment showed strength, growing at a rate of 12%. GlaxoSmithKline's overall profit of GBP$6.4 billion also rose by 21.3%.

These numbers might suggest that consumer health is the more appealing business to invest in once the company splits into two. However, GSK said that it has more than 20 products in its biopharma pipeline that it could launch by 2026, and over 10 of them could generate more than $1 billion in peak annual revenue. Staying invested in both businesses can be a good way for income investors to get a good mix of both dividends and growth. And now could be a great time to buy it on the dip, as shares of GlaxoSmithKline are down 20% over the past 12 months, while the S&P 500 has risen by 16%.

2. Telus

If you're strictly after dividend income and just want to collect a recurring payment, Telus is a stock you'll like. With limited volatility and a yield of 4.6%, this telecom provider makes for an easy buy-and-forget investment you can tuck away in your portfolio for years. Its current payout ratio also sits at 70%, and the stock can be a great alternative to putting money into a low-interest-paying bank account, as it is up a modest 5% over the past year.

As for the business, it's also doing well even amid the pandemic. Although COVID-19 has negatively affected the company's bottom line with fewer people roaming and its retail stores having to shut down, on Nov. 6, 2020, Telus still reported a profit of 989 million Canadian dollars over the nine-month period ending Sept. 30, 2020. Although it was down 44.3% year over year, the company still generated year-over-year revenue growth of 5.6% during the period as its wirelines business grew by 16.2%, more than offsetting losses in its wireless segment, which fell by 3.1%.

Despite the drop in profitability, Telus still looks to be in good shape. Things will get a whole lot better for business once people are traveling again, which could happen soon now that the COVID-19 vaccine rollout is under way.

3. Southern

Utility companies also make for great income investments, as they're incredibly stable and offer products that are not wants, but needs. Although Southern's 4.2% yield is the lowest on this list, it makes up for that with rock-solid financials. Over the past three quarters, the company has generated $15.3 billion in revenue, which is down 7.6% year over year. Southern blames the declining sales on COVID-19 and on milder weather during the year. But with profits of $2.7 billion during that time, the company still had a strong net margin of 18%. The company serves more than nine million customers across six states, providing them with electricity and natural gas. Through its subsidiaries, it also offers telecommunication services and is a fiber optics wholesaler.

The most noticeable effect of the pandemic was evident in the commercial segment, as more people worked from home and some businesses closed, which led to a decrease in the demand for electricity in office spaces. Commercial kilowatt-hour sales declined 8.4% over the past nine months, followed by a 7.8% drop in the industrial segment. In the residential market, however, sales were down a more modest 3.5% -- which was due to milder weather. 

Southern's payout ratio is a bit high at over 80%. It's a risk because if things don't improve, the company could be tempted to reduce its payouts to give itself a little more breathing room. The $2.7 billion in profit it reported over the past nine months was 36.4% lower than it was in the previous year. But as things normalize in the economy and businesses get back to operating normally, profits should improve. And that's already starting to happen -- in the third quarter ending Sept. 30, 2020, Southern's bottom line totaled $1.3 billion and was down just 4.9% from the prior-year period. Although it may be an uncertain road ahead, Southern's dividend payments still look to be safe. In the past 12 months, Southern's shares have fallen 11%, making now a great time to lock in its above-average yield.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
$44.37 (2.42%) $1.05
The Southern Company Stock Quote
The Southern Company
$74.25 (0.81%) $0.60
TELUS Corporation Stock Quote
TELUS Corporation
$24.78 (2.14%) $0.52

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.