As a dividend growth investor, it's probably not surprising that dividends are my favorite source of passive income. When you own great dividend growth stocks, you also happen to own some of the greatest businesses in the world.
But it's not always so easy to find productive dividend stocks. The S&P 500's strong performance over the past decade (even factoring in the recent market sell-off) has lowered the index's average dividend yield to just 1.4%. Rates that low make it difficult to get your investment capital working effectively for you.
The good news is there are always attractively priced high-yield dividend stocks out there to purchase for your portfolio if you know what to look for. Here are two stocks with dividend yields ranging from nearly 3% to more than 5% that also offer high stock price appreciation potential.
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1. Broadcom
The first high-yielding dividend stock to consider is the semiconductor and software producer Broadcom (AVGO -0.41%). With a market capitalization of $232 billion, it's the fourth-largest chipmaker stock in the world by market cap. Broadcom is clearly a well-established leader in a massive industry, which is a major strength for the company.
Another favorable quality of Broadcom is the industry in which it operates. Growth in internet-connected devices and wireless communication is expected to bring total semiconductor industry revenue to $778 billion by 2026, which would be a 7.7% compound annual growth rate over the 2020 base.
Broadcom's leadership in a rapidly growing industry is expected to pay dividends both literally and figuratively for its shareholders. That's because analysts are forecasting that the company will deliver 15% annual earnings growth through the next five years.
And better yet, Broadcom's dividend payout is poised to grow like a weed in the years to come. The stock's payout ratio was 51.4% in its previous fiscal year which gives Broadcom plenty of free cash left over to repurchase shares, repay debt, and make acquisitions to grow its profitability further. I'm anticipating low-double-digit percentage annual dividend growth for the foreseeable future, which is a lot to like when paired with its market-beating 2.8% dividend yield.
Best of all, investors can scoop up Broadcom at a forward price-to-earnings (P/E) ratio of 16.8. This is a bargain for a fast-growing tech stock, especially with the S&P 500's overall forward P/E ratio being 18.6.
2. Philip Morris International
The second high-yielding stock is the tobacco company Philip Morris International (PM 0.61%). The company's $146 billion market cap makes it the biggest tobacco company by more than $50 billion over its U.S.-based former parent company Altria Group (MO 1.01%).
It's no secret that cigarette volumes have been declining in most markets around the world for some time now. That explains why Philip Morris International's cigarette volumes were down 0.6% in 2021. But the good news for the company is that it saw the writing on the wall many years ago, recognizing that consumers want what they perceive to be less harmful alternatives to cigarettes.
This is where the 2014 launch of Philip Morris International's IQOS non-combustible product came into the picture and transformed the company's business model from secular decline into growth. Unlike traditional cigarettes, IQOS heats tobacco rather than burning it. It's believed that this reduces a user's exposure to harmful chemicals in the smoke.
Growth in Philip Morris International's IQOS user base to 21.2 million at the end of 2021 led overall cigarette and heated tobacco unit shipment volumes 2.2% higher during the year. These impressive results form the basis for why analysts are expecting annual earnings growth of 10% over the next five years.
And since Philip Morris International's dividend payout ratio was 79.8% last year, the stock has room to grow its dividend at a rate close to earnings growth. This is why I am projecting mid- to upper-single-digit annual dividend growth over the medium term. On top of Philip Morris International's market-crushing 5.2% dividend yield, this is an enticing blend of income and growth.
And investors can pick up shares of Philip Morris International at a forward P/E ratio of 15.1, which makes the stock a great pick for 2022.
