Investing in the stock market is an excellent way to grow your wealth over time. However, it can be challenging to know which stocks will make for great investments. Is now the right time to load up on growth stocks? Will high-yielding dividend stocks serve an investor well over the long term? Or should investors just forget it, and look for options in the fixed-income (bond) markets or alternative assets, such as real estate?
Every investor is different, with their own unique risk tolerance profile and investment objectives. For the group of investors looking for dividend stocks with significant yields to put in the "no-brainer" bucket, there are a few options to consider that look much more attractive today than they have in some time. Here are three high-yield dividend stocks that are no-brainer buys right now.
1. Verizon
Verizon Communications (VZ 0.24%) is a leading player in the telecommunications sector, and yet it is often viewed as a boring, no-growth, or very-slow-growth company. Admittedly, it is.
NYSE: VZ
Key Data Points
Still, there are a few enticing factors long-term dividend investors should consider with this company. First, Verizon's brand and consumer loyalty metrics are impressive. There's little to differentiate the three major telecom players outside of cost and network quality. And yet Verizon customers tend to stick around, leading the sector on loyalty according to a recent Evercore ISI report.
Another key growth factor investors note for Verizon is its 5G build-out. Thus far, building Verizon's wireless network has cost the company quite a bit. Verizon's annual investment total reached $23.1 billion in 2022, causing a decrease in free cash flow from $19.3 billion to $14.1 billion. However, this investment will decrease over time. With budgeted capital expenditures of between $18.25 billion and $19.25 billion for 2023, and further projections of decreased spending to $17 billion in 2024, the company is moving in the right direction.
The resulting increased cash flow could end up going to boost its share buyback program, increase its dividend, or pay down debt. Given the company's current net debt of roughly $148 billion, it's clear Verizon has places to make use of that added funding.
Verizon's dividend has caught the attention of some investors, as it currently yields almost 6.5%. Still, the company consistently keeps its payout ratio manageable (currently at 50%) and it has raised the dividend annually every year since 2007. Verizon averaged 2.9% annual growth in its dividend since 2007 as well.
As Verizon's 5G investments start to pay off, its free cash flow growth profile should improve as well as its revenue derived from 5G customers. Patient investors stand to benefit, and those who buy now will get paid 6.5% quarterly dividends while they wait.
2. Dow
Dow (DOW +3.29%) is an old company. Founded in 1897 by Herbert Dow, one year after Charles Dow (unrelated to Herbert) created the Dow Jones Industrial Average index, this chemical company has been around the block once or twice. It's now a stand-alone company focused on commodity chemicals, but it was for a time (2015-2019) merged with DuPont before splitting into three companies, Dow, DuPont de Nemours (specialty chemicals), and Corteva (seeds and agricultural chemicals). Dow as it stands now is often viewed as a way to play commodity price movements in cyclically sensitive areas of the economy such as manufacturing.
NYSE: DOW
Key Data Points
While investors may not necessarily be able to rely on Dow's historical track record to gauge its potential performance as a dividend play moving forward, Dow remains a significant player in the chemicals space, with more than 12% market share as of the fourth quarter of 2022. Unfortunately, the company's recent performance hasn't emboldened investors, with Dow's earnings per share declining to $6.32 in 2022 from $8.44 a year prior. This led to a relatively low price-to-earnings multiple of approximately 9.4, along with a dividend yield of around 4.7%. While that's not necessarily the setup investors want to see for a large-cap company, this is certainly a stock to be put in the high-yield bucket.
As far as Dow's market positioning is concerned, I like the company's defensive posture. Dow plays a critical role in the functioning of the world economy, meaning there's some stability with respect to demand for its goods over time. Granted, Dow is subject to cycles in various end markets. But over time, Dow looks well-positioned to benefit from consistent global growth.
Additionally, for those who (like myself) believe that a commodities super-cycle is likely to continue to play out over time, Dow is a great way to play this trend. Via various tailwinds such as reshoring and a renewed focus on domestic manufacturing, this U.S.-based chemicals giant appears well-positioned to benefit from a commodities sector with a brighter outlook than we've seen in some time.
Dow's compelling valuation puts this stock squarely in the undervalued camp. For those taking a bullish long-term view on commodities and manufacturing, buying a company like Dow at a sub-10 earnings multiple and a free cash flow yield of nearly 10% seems to be a reasonable bet.
3. Enbridge
Rounding out this list of high-yielding stocks is a personal favorite, Enbridge (ENB 0.82%). It operates a low-risk business model in the energy sector. It operates pipelines and utilities backed by long-term contracts with stable customers and government-regulated rate structures. These factors enable Enbridge to generate very stable cash flow regardless of the volatility of oil prices.
It's a top-tier dividend stock, due in part to the midstream energy player's impressive 6.4% dividend yield. Any blue chip stock providing a yield that's more than three times that of the S&P 500 index (which yields 1.7%) is worth looking at. Additionally, this Canadian energy infrastructure giant has consistently raised its payout over time.
NYSE: ENB
Key Data Points
Enbridge recently revealed its latest dividend payment, a 3.2% increase from the previous level. With this hike, the company has now provided a raise to its investors for 28 consecutive years, which is an exceptional growth record in the unpredictable energy industry.
This outlook allowed Enbridge to raise its dividend to an annual rate of CA$3.55 ($2.62) per share, a 3.2% increase from the 2022 level. This would place the dividend payout ratio at a favorable 65%, within its targeted range of 60% to 70%.
Putting it all together
These three stocks are all excellent options for investors looking to diversify their portfolios and create a very respectable passive income portfolio. Each one offers investors consistent dividend payments, leading to an attractive return on investment. Moreover, the stocks have solid fundamentals with growth potential in the long term. Investing in these no-brainer stocks certainly seems compelling for long-term investors looking to battle market uncertainty right now.
