The Federal Reserve has significantly ratcheted up interest rates over the past several quarters to help cool inflation. This move has also pushed up rates for lower-risk income-producing investments like bonds and certificates of deposit. That has had a trickle-down impact on other yield-focused investments, like dividend-paying stocks. As their share prices have fallen, their dividend yields have increased, which compensates investors for their higher risk profiles relative to bonds and CDs.
As a result, many stocks are offering attractive dividend yields these days. Kenvue (KVUE -0.84%), Southern Company (SO -1.56%), Stag Industrial (STAG -0.17%), and Williams (WMB -0.48%) stand out for their enticing payouts, which all yield over 4% at recent prices (more than double the S&P 500's 1.6% dividend yield). Here's why income-seeking investors should buy them without hesitation.
A healthy dividend
Kenvue is new to paying dividends. It initiated its payout earlier this year as it separated from Johnson & Johnson. However, it offers a healthy dividend that currently yields 4.1%.
The maker of Band-Aid, Tylenol, and other consumer health products generates lots of cash. It expects to produce more than $2 billion of cash flow each year, which will more than cover its annual dividend. That will supply it with excess free cash to invest in growth, strengthen its already formidable balance sheet, and opportunistically make acquisitions.
The company's growth drivers should enable it to follow in the footsteps of its former parent and steadily increase its dividend. Johnson & Johnson has raised its dividend for over 60 straight years, a track record Kenvue hopes to emulate.
Adding more power to grow its payout
Southern Company has an exceptional track record of paying dividends. The utility has maintained or increased its payouts for 76 years, while delivering dividend growth for the last 22 straight years. The company's durable and rising dividend currently yields 4.2%.
The utility should have plenty of power to continue paying dividends in the future. It generates very stable cash flow supported by regulated rate structures and long-term contracts. That gives it the funds to pay dividends and invest in its continued expansion.
Southern Company is in the process of completing a major expansion project. It's building the country's first two nuclear power-generating units in decades. The more than $10 billion investment should generate about $700 million in incremental annual cash flow once the second unit starts up in the coming months. The company is also growing its renewable power business. These growth drivers should give it the fuel to continue paying a growing dividend.
A steady grower
Real estate investment trust (REIT) Stag Industrial's dividend currently yields 4.3%. The industrial REIT has a solid track record of paying dividends. It does so monthly, and has increased it every year since going public 12 years ago.
The REIT generates very stable rental income to pay dividends. Meanwhile, that income steadily rises, driven by growing rents and its expanding portfolio. Stag Industrial's same-store cash net operating income has grown by more than 2% annually over the past eight years, driven by contractual rental rate escalation clauses and market rent growth captured as legacy leases expire and it signs new ones at higher rates. In addition to that internal growth, Stag has acquired an average of $750 million of new properties each year.
The company expects its same-store growth rate to accelerate this year, driven by higher market rent growth due to strong demand. Meanwhile, it should stay elevated in the future as the company signs leases with higher annual rental rate escalation clauses. In addition, the company expects to acquire $300 million to $700 million of new properties this year. These factors should enable the REIT to continue growing its dividend.
Lots of fuel to continue growing its payout
Williams' dividend currently clocks in at 5.2%. The natural gas pipeline giant has been a reliable dividend stock over the years. It has paid a dividend every quarter since 1974 and has grown its payout at a 6% compound annual rate since 2018.
The company is in a strong position to continue growing its dividend. It's investing heavily to expand its operations in the Gulf of Mexico and its key Transco pipeline, which supports growing gas demand along the Atlantic and Gulf coasts. These investments should increase its cash flow as they come online over the next few years, with its earnings from the Gulf of Mexico expected to double by the end of 2025.
Meanwhile, the company has a strong balance sheet, giving it the flexibility to make acquisitions. It made three deals last year, providing an immediate cash flow boost while enhancing its growth profile. Future purchases would give it even more cash to pay dividends.
High-quality, high-yielding dividend stocks
Kenvue, Stag Industrial, Southern Company, and Williams offer dividend yields above 4% these days. Those are rock-solid payouts backed by companies with excellent track records of paying dividends. Given their growth prospects, this quartet should be able to increase their already attractive payouts in the future. That combination of yield and payout growth makes them stocks that income-focused investors should buy without hesitation right now.