Falling stock prices and rising fixed-income yields have sent investors out of stocks. Consequently, many major indices have fallen into bear market territory.
Although rising rates tend to also hurt dividend stocks, the bear market has taken some companies to low valuations and high dividend yields. Considering these conditions, income investors might want to consider high-yield dividend stocks such as Verizon (VZ -0.53%), Innovative Industrial Properties (IIPR 0.06%), and Walgreens Boots Alliance (WBA -1.33%).
Verizon
Even as Verizon stock struggles, the outlook for its dividend continues to improve. The annual dividend stands at $2.61 per share, and the recent decline in the stock price has raised its dividend yield. Hence, investors who buy now will receive a cash yield of about 7.3%.
Additionally, it recently passed its 16th consecutive annual dividend increase. This is notable since rival AT&T abandoned its Dividend Aristocrat status last year, giving Verizon a longer payout streak.
Verizon also continues to build a reputation in network quality and improvements. It won the most J.D. Power awards for network quality for the 28th straight year. Moreover, thanks to 5G, it looks positioned to benefit from an emerging network-as-a-service (NaaS) business. This will likely serve as an additional source of revenue, as Verizon's network powers many of the latest tech applications.
Still, that lead comes at a high cost, as Verizon is now $149 billion in debt. Investors will remember that debt was a likely factor in AT&T cutting its payout, a point that should concern Verizon investors.
Nonetheless, in the first half of the year, free cash flow came in at around $7.2 billion, enough to cover the $5.4 billion spent on dividends. The aforementioned drop in the stock price has also taken its price-to-earnings (P/E) ratio down to seven. While it's not a fast-growth stock, the low multiple lowers the risk of buying now while giving investors a considerable cash return.
Innovative Industrial
IIP is the "cannabis stock" that is actually a real estate investment trust (REIT), leasing land and facilities to medical marijuana growers. REITs must distribute at least 90% of their net income as dividends. This grants a measure of stability to its $7.20 per share annual payout, which returns 7.6% at current prices.
Its yield has surged as the stock has lost more than two-thirds of its value since last November. Investors became alarmed amid a class action lawsuit and Kings Garden missing rent payments. That cannabis company had previously accounted for 8% of rental revenue.
However, despite its struggles, it passed its second payout hike, raising the annual dividend by $0.20 per share in September. Moreover, Grand View Research forecasted the industry will grow at a compound annual growth rate of 26% through 2030. Thus, IIP can likely find tenants to replace Kings Garden.
Amid the troubles, revenue for the first half of 2022 came in at $135 million, 47% higher than year-ago levels. This brought in $114 million in adjusted funds from operations income, a measure of a REIT's free cash flow, for the period. That means it covered the $84 million cost of the dividend in that time frame.
Additionally, the massive drop in the stock price means the stock sells for approximately 10 times company sales, a level near all-time lows. With that valuation and the fact that it continues to hike payouts, IIP is likely still a buy.
Walgreens
Admittedly, Walgreens might look like a counterintuitive choice to some. Rising competition from Amazon and the Mark Cuban Cost Plus Drug Company has probably pressured its margins. Moreover, archrival CVS Health's purchase of Aetna adds pressure on Walgreens to increase its offerings.
However, it outpaces these rivals with dividends, having passed its 47th consecutive annual increase. The annual payout of $1.92 offers a cash return of 5.9%, well above CVS's 2.5% yield.
Walgreens has also ventured more deeply into care, but not as an insurer. It partnered with VillageMD, a move that will place clinics staffed by medical doctors in 500 to 700 Walgreens locations by 2025.
Amid this potential, revenue for fiscal 2022 came in at $133 billion, exhibiting flat year-over-year growth. Its free cash flow took a harder hit, falling to $2.2 billion versus $4.2 billion in fiscal 2021. Losses on previously held investment interests drove most of this shortfall.
Fortunately, it still covered Walgreens' $1.7 billion dividend cost. Moreover, the company raised targets for the U.S. health business, a factor that could reinvigorate growth. With a record low P/E ratio of five and a high dividend, Walgreens could become a boon for dividend investors.
