If history is any indication, the best thing you can do with your cash is buy dividend stocks. Study after study reinforces the idea that dividend stocks outperform nonpaying ones by a wide margin.
Several years ago, J.P. Morgan Asset Management found that stocks that initiated and then raised their payouts over a 40-year period between 1972 and 2012 returned an average of 9.5% annually, versus just 1.6% non-dividend-paying stocks.
Over rolling three-year periods, the higher-yielding securities beat the low- and non-dividend-yielding securities about two-thirds of the time.
The asset managers at Hartford Funds similarly found that dividend-paying stocks contributed 41% to the total return of the benchmark S&P 500 going all the way back to 1930. Even during the so-called "lost decade" of the 2000s, when the tech stock bubble burst, the 9/11 tragedy struck, and the housing market crashed -- resulting in the negative returns on the S&P 500 -- dividend stocks gained 1.8%.
Here are two exceptionally inexpensive high-yield dividend stocks to consider investing in right now.
Mobile TeleSystems (current yield: 10.4%)
Russian telecom giant Mobile TeleSystems (MTB -0.96%), which also goes by the initials MTS, pays a semiannual dividend that's based not only on its annual results but also on its quarterly performance during the year. Its current policy, which was set back in 2019 and expires at the end of this year, sets a minimum payout of 28 rubles ($0.39 at the current exchange rate) per year, or 56 rubles ($0.79) per American depository share (ADS).
The payout has averaged around a 10% yield since 2015, so its current dividend is right in line with its historical record.
What makes MTS an interesting dividend play is the growth potential of its business, not just in the telecom world, but also in finance, cloud computing, and streaming services, where it has branched out and is seeing tremendous expansion.
On the telecom front, Russia is also undergoing a massive infrastructure upgrade from 4G to 5G networks, which could spark an upgrade cycle in smartphones to take advantage of the enhanced capabilities of the system.
The vast expanse of Russia means the more rural areas of the country are only in their initial phase of improving their infrastructure while major metropolitan centers are already heavily saturated. Both situations provide MTS with significant opportunity.
The telecom is scheduled to report earnings next week, but last quarter it saw the number of streaming-television users surge more than 2.5 times from a year ago to 3.2 million, while delivering 48% sales growth in cloud and digital-solutions revenue.
Over the first six months of the year, MTS Bank increased its net interest income 22% while net fee and commission income more than doubled from the year-ago period. It believes the bank has grown to such a degree and has "now achieved sufficient scale to become an engine of profitability for the Group as a whole."
At less than this year's earnings estimates, MTS should be considered a cheap, high-yield dividend addition to their portfolios.
AT&T (current yield: 8.4%)
Another high-yield dividend payer with serious upside potential that's also in the telecom field is AT&T (T 1.05%).
Its stock has been battered because it will spin off its WarnerMedia properties before merging it with Discovery (DISCA) (DISCK) to create a new publicly traded media company and then slash in half the amount of free cash flow dedicated to its dividend. Nevertheless, there remains significant potential for this stock as a narrowly focused telecom company.
The stock has lost a quarter of its value since the company made those announcements. But investors will own 71% of the new media business, which will include HBOMax and Discovery+ and will put it on a better footing to compete against the likes of Netflix and Disney.
AT&T will also be getting something out of the deal -- like $43 billion that it will use to pay down debt and focus on enhancing its network. It expects to have annual capital expenditures of around $24 billion once the transaction closes, and having spent big bucks acquiring 5G midband spectrum earlier this year, it expects its 5G-C network to cover 200 million people in the U.S. by end of 2023 and its fiber footprint to grow to cover 30 million customer by the end of 2025.
Despite the naysayers on Wall Street, AT&T looks well positioned for sustainable organic growth through the middle of the decade. And because data is the driving force spinning AT&T's wheels, look for the telecom to overcome the doubts and perform well in the future.
No doubt, many investors who bought the stock because it was a Dividend Aristocrat with a 36-year history of raising its payout will be disappointed by the dividend cut. But they're also receiving another growth vehicle in the WarnerMedia business that could easily make up for the loss.