Want to collect a high dividend yield without taking on a lot of risk? Well, those risks start to escalate a bit once the payouts start to exceed 6%. An alternative might be to focus on dividend yields that are above average (but still modest) and that are likely to grow over time. Three stocks that pay above-average yields today and that have been increasing their dividends over the years are AbbVie (ABBV +0.41%), Toronto-Dominion Bank (TD 0.06%), and Verizon Communications (VZ 0.73%).
1. AbbVie
Healthcare company AbbVie currently pays a yield of around 3.9% -- more than double the S&P 500 average of 1.7%. Going back to when it was part of Abbott Laboratories, it is also considered a Dividend King, having raised its payouts annually for at least 50 consecutive years. Not only does the stock offer a high yield today, but there's also a strong likelihood of those dividend payments rising in the future. Last year, the company generated more than $24 billion in free cash flow compared with just $10 billion that it paid out in dividends.
NYSE: ABBV
Key Data Points
What makes the stock a great buy this month is that its valuation is fairly low, with AbbVie trading at a forward price-to-earnings (P/E) multiple of 15, which is based on how analysts see the company performing in the year ahead. By comparison, the average healthcare stock trades at a forward P/E of 18.
AbbVie's stock offers investors good value, and while its top-selling drug Humira is losing patent protection and its sales will potentially crash by as much as 37% this year, the company has other promising drugs that can eventually fill in the gap, including Skyrizi and Rinvoq.
While this year could be a bumpy one for the stock, in the long run, Abbvie management believes the company may be back to generating strong growth by 2025. And for the remainder of the decade, its top line could grow in the high single digits each year.
For long-term investors, now may be an optimal time to buy shares of AbbVie, while its valuation remains modest.
2. Toronto-Dominion Bank
Bank stocks have been under a bit more stress in the past few months, but Toronto-Dominion (TD) is among the best and most stable and wasn't affected by the recent uncertainties. It's one of the big five banks in Canada, and it has an equally strong presence in the U.S. as well, providing investors with some good diversification and balance.
NYSE: TD
Key Data Points
Investors will love this dividend stock for its stability -- TD has been paying uninterrupted dividends going back to 1857. Today, its dividend yield sits at 4.7%, which is higher than normal for the big bank stock. Its modest payout ratio of 44% also suggests that there's room for it to bump up its payouts in the future.
In the trailing 12 months, the company generated earnings totaling just under 15 billion Canadian dollars on revenue of CA$47.6 billion, for a profit margin of 31%, and that's amid some challenging economic conditions. While there's the potential for a recession to take place this year that could hinder the bank's growth, there's plenty of safety in the dividend, given the low payout ratio. And TD has a strong track record for paying dividends regardless of the economic situation.
Shares of TD are trading near their 52-week low of $55.43, and now is a great time for long-term investors to add the dividend stock to their portfolios. At a forward P/E of just over 9, this is another cheap-looking stock to own.
3. Verizon Communications
The highest dividend yield on this list belongs to Verizon at an incredibly high 6.7%. A key reason the stock is paying so much is that its stock price has been falling 16% over the past 12 months and is now near its 52-week low of $34.55. As a stock's price goes down, its yield goes up as investors are still collecting the same dividend at a lower price.
NYSE: VZ
Key Data Points
Although Verizon hasn't been generating great growth numbers, the company's financials are still solid and able to support the dividend. For the first three months of 2023, the company's operating revenue of $32.9 billion was down 1.9% year over year. Its operating expenses, however, also declined by 1.7%, and Verizon's overall adjusted earnings per share totaled $1.20 for the period. While that's lower than the $1.35 earnings per share it reported in the prior-year period, that's still much higher than the telecom company's quarterly per-share dividend payment of $0.6525. Not only is the payout safe, but this is another dividend that has room to rise higher in future quarters.
This year, the company anticipates its wireless service business, its core operations, to generate revenue growth between 2.5% and 4.5%. Verizon may not be blowing its top line out of the water, but it's still doing well right now. And with the stock trading at a forward P/E of only 8, it's a great value buy for dividend investors.
