The market's decline has given investors an opportunity to invest in some strong dividend stocks at reasonable prices. Companies that have strong moats are now being overlooked by many investors.
I think there are many opportunities in high-yield dividend stocks, and Verizon (VZ 0.90%), TotalEnergies (TTE 1.72%), and Best Buy (BBY 0.20%) are at the top of the list.
1. Verizon: The underrated telecom
You probably know Verizon as a cellular network provider, and that's the core business that drives the steady revenue and solid profitability you see below. But I think this is scratching the surface of the company's potential.
VZ Revenue (TTM) data by YCharts.
Not only is Verizon in an oligopoly in cellular networks -- with AT&T (NYSE: T) and T-Mobile (Nasdaq: TMUS) -- the company is now entering the home and business broadband industry, competing with cable and even fiber broadband. I made the switch to Verizon 5G Home earlier this year, and my internet is faster and more reliable than cable, which tells me this will be a compelling solution for some consumers. Management says Verizon had 6.5 million home broadband customers at the end of 2021 and hopes to get to 11 million homes by 2025. I think that undersells the opportunity now that 5G Home covers 100 million people.
At worst, Verizon has a highly profitable business with a big moat, and at best, it's a growth stock that can begin bundling smartphone service with home broadband and even streaming TV channels. Investors are getting the stock at a trailing price-to-earnings ratio of 10 and a dividend yield of 5.1%, which I think will end up being a great value long term.
2. TotalEnergies: A long-term energy play
Oil prices are high, gasoline is expensive, and as a result, oil companies are swimming in profits. You can see below that TotalEnergies is generating more free cash flow as a result. A decade ago, the company likely would have poured most of that money back into growing production, but today the energy industry is happy taking profits because managers can see demand destruction coming down the pipeline from electric vehicles.
TTE Free Cash Flow data by YCharts.
TotalEnergies has also been investing more into renewable energy and transition fuels. It's been investing in solar for more than a decade and even recently invested in a new green hydrogen business in India. This is an oil company first, but it's investing in becoming a complete energy company with exposure to renewable energy long term.
The stock is a great value too with a price-to-free-cash-flow ratio of 6.8 and a dividend yield of 5.4%. Oil usage isn't going to stop anytime soon, and until a broader transition to renewables takes place, companies like TotalEnergies will be cash-flow machines.
3. Best Buy
This may sound crazy if you haven't been watching, but Best Buy has been a very steady retailer for nearly a decade. The company isn't great at competing with e-commerce companies, but it's built a great business by being a go-to store for consumers and a solutions provider for businesses. You can see below that it had a big bounce in revenue and cash flow during the pandemic, but it was growing slowly even before that.
BBY Free Cash Flow data by YCharts.
The fact that Best Buy has found a niche in electronics retail at a time of strong competition online is a testament to its improved business model. And I think that having physical stores and services like Geek Squad and enterprise service will be valuable for many years to come.
Best Buy trades at just eight times trailing earnings and has a 5% dividend yield, and I think that's a good value for a tried-and-true retail investment.
Don't overthink dividend stocks
What's common between Verizon, TotalEnergies, and Best Buy is that they're well-known brands in steady industries that aren't likely to be disrupted anytime soon. That's a great recipe for dividend growth long-term, which is why I think they're great buys today.
