Buying cash-generating businesses when their dividend yields are high and their stock prices are low is a time-tested strategy for amassing wealth in the stock market. If you're interested in implementing this approach in your own portfolio, here are two stocks to consider investing in today.
1. Verizon Communications
Verizon (VZ 1.17%) is a popular stock among income-seeking investors. It's easy to see why. The telecom giant's shares are currently offering an enticing 6.5% yield on your investment dollars.
As people spend more time online, 5G wireless and broadband internet services are quickly becoming necessities. Verizon, which has garnered a reputation for fast and reliable service among businesses and consumers alike, is a leader in these increasingly indispensable areas.
Verizon's broadband business is particularly robust. The company gained 413,000 broadband customers in the fourth quarter, driven by strong demand for its fixed wireless offerings. That brought its total broadband subscriber count to 10.7 million.
Verizon's fast-growing broadband business and loyal wireless customers helped it generate free cash flow of $18.7 billion in 2023, up from $14.1 billion in 2022. That's plenty of cash to cover Verizon's roughly $11 billion in annual dividend payments while leaving enough left over for further debt reduction. Verizon cut its unsecured debt load by more than $2 billion in 2023 to $128.5 billion as of Dec. 31, 2023.
Impressively, Verizon has raised its cash payout to shareholders for 17 straight years. Better still, this dependable income stream can be had for a bargain price. The dividend stalwart's shares currently trade for only about 9 times its trailing free cash flow.
2. Altria Group
Yield-hungry investors may also want to take a look at Altria Group (MO -0.37%). The tobacco titan has grown its cash payout consistently for more than five decades. Its surprisingly high yield stands at about 9.7% today.
Fewer Americans are smoking every year. That's a trend that's likely to persist. Yet cigarettes could still be a lucrative business. By steadily increasing prices on popular brands like Marlboro, Altria has largely offset lower sales volumes. These price hikes, combined with the company's cost-reduction efforts, have also helped to drive Altria's profit margins higher over the past half-decade.
MO Operating Income (TTM) data by YCharts
Altria's traditional tobacco business is likely to remain a cash cow for the foreseeable future. Nevertheless, the company is working to diversify its product lineup with an expanding array of smoke-free offerings.
Altria's "on!" tobacco-leaf-free oral nicotine pouches are one of its fastest-growing business lines, with shipments up 37% year over year to 29 million in the third quarter. To further broaden its smoke-free lineup, Altria purchased electronic cigarettes and vaping products maker Njoy Holdings for $2.8 billion in June. It also entered into a joint venture with JT Group in late 2022 to develop heated tobacco stick products. All told, management expects Altria to grow its smoke-free revenue to $5 billion by 2028, up from $2.6 billion in 2022.
Cannabis could be another potent growth driver. Altria has a 41% equity stake in Cronos Group. The growing possibility that regulators will reclassify marijuana as a less dangerous drug could make it easier and more lucrative for cannabis producers like Cronos to operate in the U.S., thereby boosting the value of Altria's stake.
In the meantime, you can buy Altria's stock while it's still on sale. This steadfast dividend payer's shares can be had today for only about 8 times its projected earnings for 2023.
