Many dividend stocks have lost some appeal over the past year as rising interest rates boosted the yields of certificates of deposit and U.S. Treasury bills to more than 5%. Many investors might find it a prudent strategy to sell some of their stocks and buy those fixed-income plays as the macroeconomic and geopolitical headwinds continue to rattle the equity markets.
But for investors who are willing to tune out the near-term noise and hold their stocks for a few more years, it makes more sense to invest in dividend stocks because they traditionally outperform fixed-income investments over the long run.
That's because shares of well-run companies tend to gradually appreciate, and their reinvested dividends help your portfolio to compound over time to generate bigger total returns. Investors who want to pursue that strategy should consider buying these three blue chip dividend stocks right now: AT&T (T 1.02%), Verizon (VZ 1.17%), and Intel (INTC -9.20%).
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1. AT&T
Over the past two years, AT&T spun off DirecTV, WarnerMedia, and its other smaller media assets to focus on the growth of its core telecom business. The company's mobility business, which now accounts for most of its revenue, added 2.9 million postpaid phone subscribers in 2022 and 1.2 million subscribers in the first three quarters of 2023.
AT&T's wireline business is struggling due to the ongoing loss of business wireline customers, but it's offsetting some of that pressure by expanding its consumer wireline business with higher-speed fiber networks. Its fiber segment has notably gained at least 200,000 net adds per quarter for 15 consecutive quarters so far.
As a newly streamlined company, AT&T's strengths seem to be offsetting its weaknesses. Analysts expect revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will rise by 1% and 4%, respectively, in 2023. Based on those expectations, AT&T's stock looks dirt cheap, trading at 6 times this year's adjusted EBITDA.
AT&T's growth rates might seem anemic, but it still expects to generate $16.5 billion in free cash flow (FCF) this year. That should easily cover its dividends, which amounted to $10 billion in 2022. At its recent share price, it offers a high forward dividend yield of 7.1%. I believe AT&T's low valuation and high yield should limit its downside potential and make it a compelling safe haven investment if interest rates continue to rise.
2. Verizon
AT&T peer Verizon has struggled due to the sluggish growth of its wireless business over the past two years. In 2022, it only gained 201,000 postpaid phone subscribers. It lost 127,000 of those subscribers in the first quarter of 2023, and only gained 8,000 postpaid phone subscribers in the second quarter. But in the third quarter, it finally impressed the market again by gaining 100,000 postpaid subscribers.
The growth of Verizon's business wireless unit offset its ongoing losses of consumer wireless subscribers. The telecom also continued to expand its smaller broadband business to reduce dependence on its core wireless business. It has gained more than 400,000 net broadband additions over the past four consecutive quarters.
Analysts expect Verizon's revenue to decline by 3% in 2023 -- mainly due to the slow growth of its wireless business in the first half of the year -- and predict its adjusted EBITDA will be flat. But they also expect both figures to rise in 2024 as its wireless business stabilizes.
Verizon's near-term growth rates might be unimpressive, but its stock trades at just 6 times this year's adjusted EBITDA and pays a forward dividend yield of 7.4%.
Like AT&T, Verizon can easily cover its dividend payout. It expects to generate more than $18 billion in FCF in 2023, compared to its $10.8 billion in dividend payments in 2022. In short, Verizon could be another great play for conservative income investors.
3. Intel
Last but not least, investors who are looking for a turnaround dividend play should take a closer look at the chipmaking giant Intel (INTC -9.20%). Its revenue declined year over year for seven consecutive quarters amid the post-pandemic slowdown in PC sales, but actually rose sequentially over the past two quarters.
That sequential growth was powered by the recovery of its core client computing group, which mainly sells x86 CPUs for PCs and workstations, and the expansion of its smaller foundry services group, which has been taking on more manufacturing orders from fabless chipmakers. That growth strongly suggests the cyclical downturn in PC sales is ending.
The company's gross margins have also held steady over the past year and its operating margins expanded.
Intel cut its dividend in half earlier this year to free cash for foundry expansion. As a result, its dividend yield of 1.3% might seem a bit low for most income investors.
But as Intel's near-term prospects improve and its FCF grows again, there's a strong chance it will raise its payout again. Intel's stock also still looks reasonably valued relative to its peers, trading at 21 times forward earnings.
In other words, this could be a great chance to buy a formerly high-yielding stock before it actually starts paying out high dividends again.
