In the investing world, volatility is as prevalent as stocks themselves. It's always been inevitable and will continue to be so. Luckily, dividend stocks can provide a sense of stability for investors. Dividends are a way for companies to reward their shareholders for patience and potentially make up for where their stock price growth may lack.
Here are three dividend stocks that are cash cows and trading well into value territory now.
NYSE: MO
Key Data Points
1. Altria Group
Tobacco giant Altria Group (MO +0.43%) hasn't been without its mishaps over the past five years, down over 30% over that span. Still, one thing remains strong with the company: its dividend. Altria recently announced another dividend increase, marking the company's 58th increase in the past 54 years. That's enough to get the title of Dividend King.
Altria's current quarterly dividend is $0.98 per share, with a yield of over 9%. That makes it one of the highest-yielding stocks in the S&P 500.
According to the Centers for Disease Control, tobacco use has been declining in the U.S., from 20.9% of the adult population in 2005 to 11.5% in 2021. But Altria has managed to keep its financials stable mainly because of its pricing power. For better or worse, tobacco is a product that sells regardless of economic conditions, and increased prices by themselves are usually not enough to wean smokers off it.
Altria hasn't succeeded as much in smokeless tobacco as it (and its investors) would hope, but there's still time to right the ship. The company has made it through decades of regulation problems, huge market fluctuations, and changing public sentiment. If it can weather this current storm, investors may be getting a bargain for the high yield.
NYSE: T
Key Data Points
2. AT&T
AT&T (T +0.00%) is trying to return to its core telecom services after what most consider a failed attempt to expand to the media and entertainment industry. It was a move that weighed on the company's balance sheet and put a strain on its resources.
One of the biggest issues for AT&T has been the company's high debt. The good news is that it's managed to knock off around $20 billion of its debt in the past three years. The bad news is that it still has $132 billion of net debt (debt minus cash and cash equivalents) left during a time when interest rates are as high. With the stock down around 20% this year, it's safe to assume that hasn't sat well with investors.
AT&T's debt is a problem, but it seems to be overblown when you consider its free cash flow and debt repayment approach. It expects to have $11 billion in free cash flow in the second half of 2023, with $4 billion put toward net debt reduction.
While AT&T figures out its debt woes, investors can be comforted by its lucrative dividend. It isn't quite Altria's 9% yield, but AT&T's trailing-12-month dividend yield of over 7.3% is still worthy enough to bank on the company's turnaround mitigating its current struggles.
NYSE: DVN
Key Data Points
3. Devon Energy
Oklahoma-based Devon Energy (DVN +1.85%) specializes in oil and natural gas exploration in the U.S.
Devon's dividend is unique because it consists of a base amount in addition to a variable amount based on its excess free cash flow. That structure hasn't been on investors' side recently because falling oil prices put a dent in Devon Energy's free cash flow, but that should be turning around soon -- much to the dislike of drivers everywhere.
Around 40% of the world's crude oil production comes from OPEC+ countries, which recently announced they would continue reducing oil output in an attempt to increase prices. It's seemed to have worked so far, with the West Texas Intermediate (WTI) crude oil price -- one of the two global oil benchmarks -- up over 15% since July.
WTI Crude Oil Spot Price data by YCharts
Devon Energy's base quarterly dividend this year is $0.20 per share. Its declared dividend for Q2 was $0.49, and its average yield over the year's first half was 4.6%. Here's how the company expects the dividend yield to move based on WTI crude oil prices:
| WTI Price | Estimated Dividend Yield |
|---|---|
| $60 | 2.7% |
| $80 | 5.3% |
| $100 | 8.1% |
| $120 | 10.2% |
Data source: Devon Energy Q2 2023 earnings presentation.
The volatility of Devon Energy's dividend yield may not sit well with some investors, but even at its lower ends, it's still well above average.
