Dividend stocks can help your portfolio thrive through thick and thin. In addition to generating reliable income and helping investors build wealth, high-quality dividend stocks also tend to hold up relatively well amid market volatility.
With that in mind, a panel of Motley Fool contributors has identified three high-yield stocks that you can count on to strengthen your portfolio. Read on to see why they think these three dependable companies are cut out to be long-term winners.
This dividend winner is a bargain
Keith Noonan (Verizon Communications): If you're looking for high-yield dividend stocks backed by great businesses, Verizon Communications (NYSE:VZ) is a standout candidate. The company has more wireless subscribers than any other U.S. provider, and it frequently receives top marks when it comes to customer satisfaction and support. Warren Buffett liked the stock so much that he's made it one of Berkshire Hathaway's largest holdings, and investors have an opportunity to buy shares at prices that are lower than what the Oracle of Omaha got.
Verizon has dipped roughly 8% across 2021's trading so far, pushing its dividend yield up to 4.6% and its forward price-to-earnings ratio down to just 10. The company also recently raised its payout, marking the 15th consecutive year that it's delivered a dividend increase, and investors can look forward to more growth down the line.
While telecom rival AT&T was recently forced to cut its payout, that was largely due to unsuccessful acquisitions and diversification initiatives. Time has shown that Verizon's more streamlined and focused approach to the telecom industry was the right one, and it's in good position to facilitate and benefit from the growth of 5G and other next-generation communications trends.
It's true that Verizon has a lot of debt on the books, but the company is a free-cash-flow-generating machine, and it remains in good position to continue hiking its payout while investing in infrastructure and growth initiatives. Even better, the company's business looks fairly recession-proof. Wireless service will only become increasingly central to business and everyday life, and Verizon is an attractively valued category leader that should be able to continue cutting big checks to shareholders.
A high-yield investment in the today and tomorrow of energy
Jason Hall (Phillips 66): There's no doubt that low-carbon and renewable energy will increasingly power the world. But the reality is that oil and natural gas will play a major role in electricity and transportation for years to come. Moreover, oil and gas play important roles as feedstocks for things like fertilizer, rubber, and plastics that humanity depends on every day.
And I think Phillips 66 (NYSE:PSX) is a compelling investment for both now and the future. The company operates some of the largest oil refining and energy logistics assets in the world, connecting production sites with processing, manufacturing, and end-use markets. It's also one of the largest petrochemical manufacturers on earth, supplying those important products used in agriculture, manufacturing, healthcare, and other industries.
And it has a long history of putting the proceeds of those operations back to work in the business, and returning billions to investors. Let's start with what it's done for shareholders:
In addition to aggressive share buybacks and a generous (and reliable) dividend, management has also made investing in the future a priority, including converting some of its refining capacity to renewable fuels. My expectation is that it will steadily shift more of its refining to biofuels over time, as demand rises and the costs to produce feedstocks fall.
Today, investors can buy Phillips 66 with shares still 35% below the pre-pandemic high, and earn a nice 4.5% dividend yield at recent prices. There's something to enjoy today, and to continue to enjoy well into the future.
Altria's sell-off is an opportunity for income investors
Jamal Carnette (Altria): Thursday was a rough day for the overall market but terrible for Altria. Versus the greater S&P 500's 1.2% decline, shares of the tobacco company plunged more than 6.5%. The reason was a ruling by the U.S. International Trade Commission that ordered both Altria (NYSE:MO) and Philip Morris International to stop sales of their IQOS heated tobacco devices.
At present, the effects are more symbolic than financial considering IQOS was a minuscule part of Altria's revenue mix. If the ruling is upheld, the ban will take away a potential growth catalyst. However, trading at a price-to-forward earnings ratio (10.2) less than half of the greater S&P 500'svaluation (22), the market wasn't factoring in significant growth.
However, the ruling furthered the narrative that management lacks a strategy to move beyond cigarettes. Smoking rates remain near all-time lows due to an aggressive campaign on behalf of the government. To date, Altria's investments in Juul, Cronos, and Anheuser-Busch InBev have been capital destructive as all are worth less than at the time of purchase.
Still, the story in Altria's core smokable products division isn't as bad as advertised. Revenue in this segment (net of excise taxes) increased 10% in the last quarter as the company was able to continue its strategy of raising prices to offset volumes. A strong inflationary environment should help Altria continue raising prices at a rapid clip, and the company has been able to successfully control its input costs, so profit should follow.
As a result, the recent sell-off presents an opportunity for value and income investors. Shares currently yield 7.4%, a figure more than five times the S&P 500's yield of 1.35%. With a yield that massive, it doesn't take significant capital appreciation to match the rule-of-thumb long-term 10% returns investors expect from stocks. Additionally, if you believe the stock market is ripe for a correction it makes sense to look for high-income stocks with cheap valuations.
You can rest assured the dividend is safe. Altria is a Dividend King -- one of only a handful of stocks that has paid and raised dividends for 50 consecutive years or more. While cash flow is supportive of its dividend, the company has optionality: In October, Altria is allowed to share its $11 billion stake in AB InBev, or nearly 13% of Altria's current market capitalization, which would allow the company to pay down debt or continue to send investors massive dividends for years to come.