As companies mature, they start building up excess cash that won't need to be reinvested into the business. When this happens, a lot of the time management will decide to start paying a dividend. Dividends are paid out periodically to shareholders, typically on a quarterly basis, and are based on a dollar amount per share. Mature, stable companies with high dividend yields are great options for risk-averse investors, or investors looking for a regular stream of income.
Altria is the maker of the popular Marlboro cigarette brand. It also has a wine subsidiary, chewing tobacco lines, and has a 10% stake in beermaker Anheuser-Busch InBev (BUD 2.32%), but the majority of its profits come from its cigarette sales. The stock currently pays a quarterly dividend of $0.86 a share, equating to an annual payout of $3.44. With a current share price of $50.57, that works out to a healthy 6.8% yield for shareholders.
How is Altria able to pay such a high dividend? Isn't the tobacco business dead? Well, yes and no. Annual cigarette volumes have declined for decades, but companies like Altria have continually raised prices to counteract these declines.
This is why for the past decade Altria has actually grown its overall revenue, from around $23.8 billion in 2011 to $26 billion last year. Altria also owns 35% of JUUL Labs, the largest e-vapor company in the world, and 45% of Cronos Group (CRON -6.20%), a global cannabis company. Altria has a 10-year plan to lead its customers to what it calls a "non-combustible future," which means moving away from cigarettes and more toward products like its On! nicotine pouches.
With all these factors working in Altria's favor, investors can have some confidence the stock will continue to pay its dividend for years to come.
Lockheed Martin is a global defense contractor focused on the security and aerospace industries. It has four main operating segments: aeronautics (mainly fighter jets), missiles, mission systems (cybersecurity and intelligence), and space. The U.S. Department of Defense and U.S. federal agencies are Lockheed's primary customers.
Typically, it's a red flag if one customer makes up the majority of a company's sales. But when that customer is the U.S. government, which spends $700 billion a year on defense, there's less reason to fret about the demand for Lockheed's products decreasing anytime soon. Lockheed's $144 billion order backlog is a big example of this reliability.
Lockheed generated $8.6 billion in operating profit in 2020 and has grown its operating profit every year but one since 2011. This allows it to continually raise its dividend, which currently sits at an annual rate of $10.40 per share. Based on the current share price of $358.45, the dividend yield is 2.9%. That can't match Altria's yield, but Lockheed's dividend has grown every year since 2011, and should grow consistently from here on out.
Verizon is one of the largest telecommunications providers in America, along with AT&T and T-Mobile US. It operates a wireless network that allows customers, mainly through smartphones, to connect to the internet and other communication services. It also has a business segment and operates a fiber-optic network through its Verizon Fios brand.
The Verizon business is simple and highly reliable. Wireless networks are extremely capital intensive, which is why the company spent $18 billion on capital expenditures last year. But once the networks are up in running, they turn into cash machines and have high barriers to entry due to their economies of scale. This is why Verizon consistently generates tens of billions in operating income each year. This, in turn, allows it to pay out a handsome dividend of $2.51 a share, or a 4.5% yield.
Overall, all three of these high dividend yielders have three things in common: they produce large amounts of cash, have high barriers to entry, and operate remarkably reliable businesses. This recipe should allow Altria Group, Lockheed Martin, and Verizon to pay large dividends for the foreseeable future.