2 Great High-Yield Dividend Stocks for Long-Term Investors

A good dividend stock has more than a high yield. Dividends need to be supported by cash flow, and cash flow depends on the long-term strength of the business.

Appliance maker Whirlpool (WHR 0.74%) and toy company Hasbro (HAS 1.14%) are two dividend stocks that long-term investors should seriously consider. Both are struggling right now: Whirlpool is facing weak demand, and Hasbro is dealing with excessive retail inventories.

Neither is safe from a potential dividend cut, but both are well positioned for the long run. Here's what dividend investors need to know.

1. Whirlpool

There's a decent chance that the major appliances in your home were manufactured by Whirlpool. The company sells mainstream appliances under the Whirlpool, Maytag, Amana, and KitchenAid brands in the U.S., and its JennAir brand goes after the luxury market.

Whirlpool's financial fortunes are tied to the state of the global economy, particularly the state of the housing market. While there's always a baseline level of replacement demand for refrigerators and the like, the company's business can get hit hard during tough economic environments.

Whirlpool reported a 10.3% decline in revenue for 2022, and free cash flow was cut in half. Cost inflation is proving to be tricky to tame, and a one-time supply chain disruption at a supplier impacted fourth-quarter results.

The company is taking some bold steps to adjust to this new environment, notably a transaction to divest most of its European business. Whirlpool will retain a 25% stake in the new entity formed by the deal with Arcelik, and it expects the deal to improve free cash flow significantly by 2024.

Whirlpool's focus on free cash flow generation should be music to dividend investors' ears. The company's latest quarterly dividend of $1.75 per share works out to a forward yield of about 5.5%.

Even with earnings and free cash flow down substantially in 2022, Whirlpool's dividend looks sustainable. The company paid out $390 million in dividends last year, compared to $820 million in free cash flow. Whirlpool expects around $800 million in free cash flow for 2023.

On top of an attractive dividend, Whirlpool is an inexpensive stock. Based on the company's guidance, Whirlpool trades for less than 9 times free cash flow. Given the state of the economy, a further weakening of the company's profitability isn't out of the question.

A global recession isn't going to do the company any favors. But for long-term investors willing to wait out the storm, Whirlpool is a bargain dividend stock worth holding on to.

2. Hasbro

Shares of toy company Hasbro have taken a beating over the past year, slumping around 45% from their 52-week high. This rout has pushed up Hasbro's dividend yield, making the stock an interesting option for dividend investors. Based on the latest quarterly dividend of $0.70 per share, Hasbro stock yields about 5.4%.

The market isn't wrong to have punished the stock. Hasbro's revenue tumbled 17% year over year in the fourth quarter as excess retail inventories weighed on demand for its products. For all of 2022, revenue tumbled 9%, and adjusted operating income slumped 7%. Looking ahead to 2023, Hasbro expects a low-single-digit revenue decline.

Hasbro's plan is to focus on fewer brands, particularly Magic: The Gathering, Dungeons & Dragons, Nerf, Peppa Pig, Play-Doh, Hasbro Gaming, and Transformers. Some of those brands are growing strongly even in a tough toy market. Magic: The Gathering, for example, grew revenue by 40% in the fourth quarter, and the franchise generated more than $1 billion of revenue in 2022.

Hasbro expects to generate between $600million and $700 million in operating cash flow this year, with a goal of reaching $1 billion by 2025. Capital expenditures totaled $174 million in 2022, so free cash flow should be somewhere in the vicinity of $500 million in 2023. The dividend will eat up around $390 million over the next 12 months.

There's not a lot of room for error, and it's certainly possible that Hasbro will consider cutting the dividend if its financial performance comes in below expectations. The retail inventory overhang will eventually correct itself, providing a boost to the struggling consumer products segment. But with a potential recession looming, the trajectory of end-market demand for toys involves a lot of uncertainty.

With the understanding that Hasbro's dividend is not set in stone, the stock is still a good option for dividend investors. A portfolio of strong brands, coupled with a reasonable valuation and, at least for now, a high dividend yield, could make investing in the stock worth the risk for long-term investors.