If you want to set yourself up with a stream of dividend payments that allow you to retire comfortably, there are two basic options.
You could buy shares of businesses that can rapidly raise their payouts, but those stocks tend to offer low yields up front. The other option is to aim for high yields upfront. Unfortunately, stocks generally don't offer high yields unless investors are nervous about the underlying business and its ability to grow profits.
Image source: Getty Images.
These days, Altria Group (MO 1.01%) and AT&T (T 1.61%) stand out because they offer high yields up front, plus there's a pretty good chance that they can steadily raise their payouts over the long run.
Altria Group
Shares of Altria Group, the tobacco giant that sells Marlboro in the U.S., are down by about 23% since they peaked in 2022. At its beaten-down price, the stock offers an eye-popping 9% yield.
Altria Group has raised its dividend payout for 54 consecutive years. Despite a terrific track record, the stock market isn't expecting future payout bumps because combustible cigarette sales are declining faster than usual.
In 2023, Marlboro's share of cigarette sales remained steady at around 42% of the market. A secular shift away from combustible cigarettes, though, pushed down the volume of cigarettes sold by 9.9% last year.
Many former smokers are picking up flavored e-vapor products that Altria can't sell because of a ban the Food and Drug Administration (FDA) enacted years ago. Altria's losses to the illicit market for disposable vaporizers will probably subside in 2024 because of increasing enforcement of the FDA's flavor ban and sales from NJOY. Altria Group acquired NJOY in 2023, and it's one of just three e-cigarette systems the FDA has approved for sale.
Competition from a fierce illicit market made last year a particularly rotten one for Altria Group. Despite the challenges, the company raised adjusted earnings per share by 2.3% in 2023. The ongoing launch of NJOY and increasing enforcement of the FDA's flavor ban could make raising earnings and its dividend payout a little easier from now on.
AT&T
AT&T stock is down about 29% from a peak it reached back in early 2021. The telecom service provider has been under a lot of pressure since it spun off its unpredictable media assets and slashed its dividend accordingly in 2022. At recent prices, the stock offers a 6.3% yield.
Shares of AT&T have been beaten down partly because old-fashioned wireline phone and internet subscribers are leaving in droves. It was also the last of its peers to launch a fixed wireless internet service that uses its 5G infrastructure.
Landline sales are down, but wireless revenue enabled by AT&T's 5G infrastructure is offsetting the losses. Plus, fiber internet sales are growing steadily. Last year was the sixth in a row that AT&T added over 1 million new fiber internet subscribers. Continued growth from its fiber product plus the rollout of a fixed wireless service pushed broadband sales 8% higher last year.
On AT&T's bottom line, free cash flow rose to $16.8 billion in 2023 from $14.1 billion in 2022. Management expects the positive profitability trend to continue. Its guidance range for free cash flow this year is between $17 billion and $18 billion.
AT&T probably won't have the fastest-growing dividend payout in your portfolio, but its position in America's three-way telecom oligopoly gives it a great chance to continue raising the payout for many years to come. Adding some shares to a portfolio and holding them for the long run looks like a smart move for most investors.
