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2 Stocks to Buy With Dividends Yielding More Than 3%

By Keith Noonan – Jul 24, 2021 at 6:35AM

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These companies pay hefty dividends and have big capital appreciation potential.

High-quality dividend stocks can help investors fortify their portfolios and lock in returns from dependable cash payments. With faster-than-expected inflation and a variety of other COVID-related catalysts creating uncertainty in the market, it could be a good time to build positions in sturdy, dividend-paying companies.

If you're on the hunt for worthwhile income plays, read on for a look at two stocks that offer substantial yields and underappreciated growth potential. 

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1. Verizon

Verizon Communications (VZ 0.26%) recently reported its second-quarter earnings results, delivering strong top- and bottom-line beats with encouraging guidance. Sales climbed roughly 11% year over year to reach $33.8 billion, and adjusted earnings came in at $1.37 per share -- up 16% year over year. The average analyst estimate had called for revenue of $32.7 billion and adjusted EPS of $1.30. It was a blockbuster quarter for the telecom giant.

Analysts had expected the company to add roughly 360,000 new post-paid wireless connections in the period, but Verizon blew past the figure and added 528,000 net connections. It also added 92,000 net broadband subscribers. The strong performance prompted Verizon to raise its full-year earnings guidance, and the company has also indicated that adoption for 5G is proceeding faster than expected. 

While Verizon and other players in the telecommunications sector have been working for years to lay the foundations for 5G networks, the rollout to customers is still in its very early stages. The company estimates that roughly 20% of its wireless subscribers now have 5G capable phones, but the real sales impact of this transition has yet to be realized. 

5G network technology allows for dramatically improved upload and download speeds and will pave the way for a wide range of new hardware and software applications. With its deep resources and top-rated network services, Verizon stands out as one of the telecom companies most likely to benefit from this potentially revolutionary shift. The stock looks attractively valued trading at roughly 10 times this year's expected earnings and sporting a dividend yield of 4.5%.

2. Hanesbrands

Hanesbrands (HBI 0.89%) certainly isn't the flashiest stock under the sun, but it could deliver big wins for income-seeking investors. While its socks and underwear business isn't likely to drive explosive sales and earnings growth anytime soon, the company pays a dividend that yields 3.3% and stands out as a worthwhile buy, trading at approximately 11.4 times this year's expected earnings.

Hanesbrands has rallied from the low point that it hit in 2020, but its share price is still down roughly 33% over the last five years. With a market capitalization of roughly $6.25 billion, the company is valued in line with this year's expected sales and looks cheap at current prices.

Management expects that the business can reach $7.4 billion in revenue by 2024, with growth primarily being driven by expansion for its Champion clothing brand. Hanesbrands even anticipates that its innerwear segment will grow at a 2% compound annual rate through the period. 

So, while the socks, underwear, and T-shirt business might look boring in the age of disruptive tech innovators and high-flying growth stocks, the company's core products are still in demand and putting up solid performance. Even better, its resurgent Champion brand has proven staying power at this point and could help push performance significantly ahead of expectations. 

The business is becoming increasingly efficient thanks to cost-cutting and efforts to prioritize Champion and other leading brands, and the company's growth potential appears to be underappreciated. Expanding its e-commerce and direct-to-consumer sales should also help power earnings growth. 

Hanesbrands' annual dividend has been flat since 2017, but the company remains committed to returning cash to shareholders and has now delivered a payout regularly for 32 consecutive quarters. Management has indicated that a return to payout growth is in the cards as earnings ramp up, so there's also a good chance that patient investors will eventually see a significant yield hike on shares purchased at today's prices.

Keith Noonan owns shares of Hanesbrands. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Verizon Communications Stock Quote
Verizon Communications
VZ
$39.02 (0.26%) $0.10
Hanesbrands Stock Quote
Hanesbrands
HBI
$6.77 (0.89%) $0.06

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