Shopping and income investing may not have anything in common at first thought. But regardless of what someone is shopping for, they always want to get the most value out of the price they pay. This is also the case with income investing. Yield-oriented investors want to get the most bang for their buck in terms of dividend safety and starting income.
Here are three attractively valued dividend payers that yield-focused investors should consider buying for their portfolios.
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1. Pfizer: more than just a one-trick COVID-19 pony
With a $238 billion market capitalization, Pfizer (PFE 0.93%) is the sixth-largest drugmaker in the world. As a testament to its innovative nature, in 2022, the New York-based company became the first in its industry to surpass $100 billion in annual revenue.
Just over half of this revenue, or $56.7 billion, came from COVID-19 products that will see a major drop in revenue in 2023 and beyond. But with seven other blockbuster medicines (e.g., $1 billion or more in annual revenue) and the Prevnar pneumococcal pneumonia vaccine, Pfizer's non-COVID business is quite diversified.
While the company's revenue will face an approximate 30% plunge for this year to $69 billion, the medium- and long-term pictures remain promising. That's because the company has 110 projects currently in clinical development (16 in registration, with approval likely around the corner) to fuel a return to revenue growth after 2023.
Income investors will like the stock's 3.8% dividend yield, which is over double the S&P 500 index's 1.7% yield. The dividend has grown an average of 7.1% a year over the past decade (although that growth has admittedly slowed in the past couple of years). And with the dividend payout ratio set to come in a little under 50% in 2023, Pfizer arguably isn't a yield trap.
Topping it off, the stock's forward price-to-earnings (P/E) ratio of 11.3 is considerably lower than the drug manufacturer industry average of 14, making it a compelling buy for dividend investors.
2. Digital Realty Trust: modern economy relies on its mission-critical infrastructure
It's an absolute certainty that without data centers, you wouldn't be able to read this article, shop online, or browse the web. Data centers are the engines fueling the Information Age, connecting devices and storing and processing data to keep our lives on track.
Digital Realty Trust (DLR 0.85%) manages more than 300 facilities worldwide that it leases out to data center operators, making it over of the largest global data center real estate investment trusts (REITs) out there. The demand for data centers will only grow as the world becomes more connected and dependent on technology. The global data center market is expected to rise from $342.1 billion in 2023 to $410.4 billion by 2027. That encouraging growth outlook should help Digital Realty to generate mid-single-digit funds from operations (FFO) per share growth annually for the foreseeable future.
Given a dividend payout ratio under 72% in 2022, the REIT's 4.4% dividend yield looks safe. The cherry on top is Digital Realty's valuation: At the current $110 share price, the company is trading at a forward price-to-FFO per-share ratio of 16.4. That's hardly an expensive valuation for a utility-like business such as Digital Realty.
3. Home Depot: A building block of the home improvement industry
Homeownership remains a cornerstone of success throughout U.S., Canadian, and Mexican cultures. This is evidenced by the trillion-dollar market that North American home improvement retailers operate in. Home Depot (HD 0.63%) is the clear leader in this space, boasting a market share in the teens.
The company's unmatched selection of products and knowledgeable staff give it a leg up over the competition. Due to high interest rates and the resulting housing market cooldown, the near term will see a deceleration in annual earnings growth to not quite 4%. But as long as those living on the North American continent prioritize home ownership, Home Depot should keep doing well.
The stock's 2.4% dividend yield is arguably enticing to investors. As is the retailer's stock performance (up 30.5% over the past three years). Since the dividend payout ratio clocked in at a tad under 49%, Home Depot's dividend seems legitimate. The stock's forward P/E ratio of 19.1 is slightly above the home improvement retail industry average forward P/E ratio of 17.8. But as the industry leader, this premium valuation is deserved, in my opinion.
