Dividends have been the main source of stock returns for more than a century. This is an important fact that anyone who invests in the stock market shouldn't overlook. However, not all dividend stocks are good investments.
Many high-yield stocks have significantly lagged behind the broader markets, as well as risk-free government bonds, in terms of total returns in recent years. Here are two ultra-high-yield dividend stocks (yields greater than 6%) that should buck this trend in 2024.
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A monster yield that's also a safe bet
Altria Group (MO -0.37%) is a legacy tobacco company that has technically been in business for over two centuries. Its flagship cigarette brands, such as Marlboro, are among the most popular on the market. The company's stock stands out as an attractive play for income-oriented investors for two reasons.
First, Altria's stock price declined by 11.7% last year due to doubts about its ability to diversify beyond its core tobacco business. As a result, its stock is now trading at a meager 7.8x 2028 estimated earnings.
Although the secular decline in smoking is a significant challenge, Altria has a sound strategy to enter new markets, such as pod-based e-vapor products, which should offer plenty of growth opportunities in the future. Therefore, Altria is not likely to be a value trap.
Second, Altria offers a whopping 9.48% dividend yield. Such a high yield might seem risky, but management has affirmed plans to continue to increase the dividend by mid-single-digits annually. Shareholders, in turn, shouldn't have to worry about a dividend cut, despite Altria's towering yield.
A top income and value play for 2024
Verizon Communications (VZ 1.17%) is one of the leading wireless providers in the U.S., with a sterling reputation for network quality. However, the company has faced some major challenges in the past few years, such as the expensive rollout of its 5G and fiber optic networks and intense competition from rivals AT&T and T-Mobile.
As a result, Verizon's stock price has declined by about 21% since 2020. But there are some good reasons to believe that Verizon will bounce back in 2024.
First of all, Verizon's free-cash-flow generation has ticked up dramatically over the past 12 months, thanks to lower capital-expenditure costs, industry-leading levels of profitability, and its leading position in the U.S. postpaid phone market. Most analysts covering the stock expect this trend to carry over into 2024 and beyond.
Second, the wireless industry seems to be reaching a more stable pricing environment after years of aggressive promotions and discounts. As the second-largest player in the U.S. wireless space, Verizon should benefit immensely from a more balanced competitive dynamic in the country.
Third, Verizon's stock appears to be deeply undervalued, with its shares trading at only 8.35x forward earnings. Keeping with this theme, the average earnings multiple among its Dow Jones peers is 26.1 at the time of this writing. With most analysts expecting value stocks to outperform growth stocks this year, Verizon's shares could go on a run in 2024.
Finally, Verizon pays an impressive 6.9% yield, which is among the highest in the telecom sector. What's more, the company has increased its dividend for 17 consecutive years, demonstrating its commitment to rewarding shareholders.
