With inflation still higher than average, interest rates rising, the economy somewhat uncertain (especially outside the U.S.), and the ongoing war between Russia and Ukraine, concerns about a global recession have investors worried.
This volatility leads some to seek out hedge investments that will safeguard part of their portfolio. And a common hedge they turn to to get through turbulent markets is reliable, high-yield dividend stocks. Here are two dependable ultra-high-yielding dividend stocks that are likely to attract investor attention in 2023 as a hedge against broader market uncertainty.
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1. British American Tobacco: A tobacco giant well prepared for the future
British American Tobacco's (BTI 1.31%) $84 billion market capitalization is second only to Philip Morris International's (PM +0.19%) $159 billion market cap among tobacco stocks. The company's iconic brands are sold in almost every market around the world. This portfolio of brands includes combustible cigarette brands like Lucky Strike, Dunhill, and Pall Mall, predominantly U.S. combustible brands dubbed Newport and Natural American Spirit, and reduced-risk (i.e., non-combustible) portfolio products such as Vuse vapor, the glo tobacco heating brand, and Velo nicotine pouches.
NYSE: BTI
Key Data Points
British American Tobacco's non-combustible tobacco business isn't yet its core revenue producer, accounting for just under 15% of its total revenue in the first half of 2022. But the non-combustible segment is growing much faster with 21.5 million regular customers and a 17.5% year-over-year growth rate. Management says the company is on pace to meet its target of at least 50 million consumers of non-combustible products by 2030. This customer growth should help British American Tobacco generate earnings growth as well. Analysts forecast 11.8% annual earnings growth through the next five years from the company.
Income investors will love the stock's 7.8% dividend yield, which is nearly five times higher than the S&P 500 index's 1.7% yield. And with a forward dividend payout ratio that will come in around 57% for the next year, yield-oriented investors can rest assured that the market-crushing dividend is safe.
British American Tobacco stock is trading at a forward price-to-earnings (P/E) ratio of 7.7, which is well below the tobacco industry average forward P/E ratio of 12.9. This is probably why analysts have an average 12-month price target of $54, which would be a blistering 42% upside from the current $38 share price.
2. VICI Properties: A REIT with world-class properties
Consumers have always been attracted to new experiences and making memories that will last a lifetime. It's one area where technology has yet to really replace the real thing. For instance, while online gambling is certainly convenient, it's difficult to make memories from your couch. That's why I believe that VICI Properties (VICI 0.18%) is a timeless investment.
NYSE: VICI
Key Data Points
The experiential real estate investment trust (REIT) owns household-name Las Vegas properties such as the MGM Grand and the Venetian Resort, as well as numerous regional casino properties throughout the U.S. The high name recognition of VICI Properties' locations is a major contributing factor to the 100% occupancy rate of its properties. And with an average lease term of 42 years on its properties, VICI is ensured a steady and growing stream of rent revenue as long as its tenants remain solvent.
VICI Properties' 4.6% dividend yield is almost triple the S&P 500 index's average yield. Considering that the company's target payout ratio is reasonable at 75%, the dividend is also quite sustainable.
And this REIT stock is trading at a modest current-year price-to-adjusted-funds from operations (AFFO) per share ratio of 17.7. This is part of why analysts have assigned an average price target per share of $38, which would be a 12% capital appreciation from the current $34 share price.
