This week's inflation data came in a little bit hot, but it doesn't mean that rates on traditional fixed income investments will stay high for much longer. When the climate starts to get kinder -- and money market funds and freshly issued bonds start offering lower rates -- yield-seeking investors will turn to dividend-paying stocks where the distributions should grow over time.
You don't need a lot of money to build out a diversified portfolio of income-generating stocks. I believe that AT&T (T 3.86%), Sirius XM (SIRI +0.00%), and Disney (DIS +0.12%) should be strong considerations for the next $400 you put to work in the market.
NYSE: T
Key Data Points
1. AT&T
After years of losing to the market and grappling with the aftermath of poor acquisitions, AT&T is looking pretty good. The telco giant has seen its stock move 16% higher over the past six months, and its chunky 6.5% yield is going to look even better as short-term rates head lower later this year.
AT&T is no longer a stodgy media conglomerate or operating a satellite TV business. It's keeping folks connected as a leader in wireless phone service and online connectivity. It's also more than happy to provide businesses and homes with more old-school offerings. And it's a lot cheaper than most of the stocks you already own, trading for just 7 times trailing adjusted earnings.
Image source: Getty Images.
Growth at AT&T isn't going to be impressive. Revenue rose just 2% in AT&T's latest quarter, as a 10% decline for its business wireline segment was more than offset by a 4% uptick for its flagship mobile services and gains elsewhere. Adjusted earnings delivered a rare miss after beating analyst quarterly profit targets for more than a year.
AT&T's guidance also disappointed investors, but this money machine is still working. After generating $16.8 billion in free cash flow in 2023, AT&T's projecting $17 billion to $18 billion in free-cash-flow generation in 2024. Put another way, the playing field is set for a dividend hike this year.
AT&T sees its already strong presence in wireless growing this year as more customers embrace the merits of faster 5G service. The telecom bellwether sees its fiber broadband service -- where it's grown by at least 1 million net subscribers for six straight years -- growing even faster.
NASDAQ: SIRI
Key Data Points
2. Sirius XM
Our next turn on the radio dial of promising dividend payers is Sirius XM. The country's lone provider of satellite radio is also cranking out unimpressive top-line growth. Revenue declined 0.6% last year, its first year of negative growth in more than two decades. However, Sirius XM continues to consistently serve up 10-figure free cash flow ever year.
Sirius XM uses its premium subscriptions and ad sales to build up content programming that terrestrial radio can't match. It uses its free cash flow to pay down debt, aggressively buy back shares, and -- yes -- pay a growing dividend. The current 2.6% yield is a lot less than AT&T, but it also has a strong catalyst for returning to growth. Sirius XM lives and dies by the time folks spend in their cars where satellite radio is primarily consumed. Commuters are hitting the road again as companies call workers back to in-office posts. Leisure travel is also on the rise as prices continue to move lower after peaking two summers ago. Sirius XM is ready to put the pedal to the metal.
NYSE: DIS
Key Data Points
3. Disney
You won't get rich from Disney's semiannual cash distributions. Even after announcing that it will hike its payout by 50% this summer, the entertainment giant will yield less than 0.7% in the year ahead. It doesn't mean that the House of Mouse can't make dividend investors happy on the capital appreciation front.
Disney shares are rolling in 2024 after losing badly to the market for three consecutive years. The stock has risen 24% year to date. Suddenly that meager payout doesn't seem so bad, as long as the upticks keep coming.
A lot is happening at Disney. You know the bad stuff. It's had recent struggles at the box office. Cord-cutters are hurting Disney's linear media networks. Its flagship streaming business has posted billions in losses over the past couple of years. Even its theme parks -- the steadiest of its operating segments -- have been meandering lately, particularly at its largest resort in Florida.
Enough looking back. The near-term outlook is surprisingly bright. Disney has a potential blockbuster hitting the silver screen every month from May through the end of the year. Disney+ should be profitable by the end of September, and top-line growth there is already offsetting the revenue sting for its traditional TV business. You also don't need to worry about the theme parks. Disney is spending aggressively in the next 10 years to invest in capacity-expanding attractions for its gated attractions and cruise ships.
Disney shares are trading for a little more than half of their all-time peak set three years ago. Disney would go on to post a profit of $2 billion on $67.4 billion in fiscal 2021. Analysts see $7.3 billion in reported net income with nearly $92 billion on the top line. It's a great, big, beautiful tomorrow for Disney at this point.
