If you're looking for dividend-paying stocks among members of the S&P 500, finding a yield high enough to inspire a purchase can be extra challenging these days. The average dividend-paying stock in the benchmark index offers a paltry 1.39% yield.
If you have just $100 available to invest, you could buy shares of both Altria Group (MO -0.78%), and AT&T (T). These S&P 500 stocks offer yields above 6% right now.
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When it comes to eye-popping dividend yields, investors need to remember they generally don't reach 6% unless the market has concerns about their underlying businesses.
The past year hasn't been easy for these well-advantaged businesses, but it seems the market has been too pessimistic about their ability to continue raising their payouts. Here's why they look like good stocks to buy now and hold over the long run.
Altria Group
Altria Group is the company behind Marlboro cigarettes in the U.S. At recent prices, the stock offers a 9.5% yield.
Marlboro is still the leading brand in the U.S., but the gradual declines in cigarette smoking we've seen for decades has accelerated. Altria Group shipped 9.9% fewer cigarettes to retailers in 2023 than it shipped a year earlier.
Combustible cigarettes are on the decline, but the overall amount of nicotine Americans consume has remained relatively steady. Unfortunately, Altria Group is losing a lot of customers to illicit e-vapor products that ignore the Food and Drug Administration (FDA) flavor ban.
Despite strong competition from the illicit e-vapor market, Altria Group reported adjusted earnings per share that rose 2.3% in 2023. This probably won't be the fastest-growing dividend in your portfolio, but continued movement in the right direction seems likely.
Altria Group has raised its dividend payout 58 times over the past 54 years. With the U.S. government on Altria's side, consumers could begin shifting away from illicit e-vapor products that will get harder to buy.
Last year, the company launched NJOY, the only pod-based e-vapor product authorized by the FDA. And the agency stepped up enforcement of its flavor ban in recent months by sending dozens of warning letters to retailers.
The FDA has also partnered with Customs and Border Protection to begin seizing incoming shipments of Elf Bar and other flavored e-vapor products.
AT&T
If you're looking for stocks that can grow their high-yield dividends, you might have overlooked AT&T because it reduced its dividend payout by 47% in 2022 to compensate for the spinoff of its media assets. The stock offers a huge 6.9% yield at recent prices and a good chance to receive steady payout raises in the years ahead.
Cash flows could be far more predictable now that it's strictly a telecommunications business with a leading network of 5G towers and fiber optic cables. Last year, the company's mobility segment added 1.7 million postpaid phone customers, which sent mobility revenue 4.4% higher.
AT&T Fiber also added 1.1 million subscribers last year, which drove broadband revenue 8.3% higher. The recent rollout of a fixed wireless service for broadband customers who can't access AT&T Fiber yet could lead to further growth.
The $128.9 billion of net debt on AT&T's balance sheet at the end of 2023 is concerning, but the company's efforts to reduce it have been encouraging. Net debt fell to 2.97 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) last year, from 3.19 times adjusted EBITDA in 2022. Management expects its net debt to continue falling and reach a relatively comfortable ratio of 2.5 times adjusted EBITDA in the first half of 2025.
The heavy investments that built AT&T's 5G network are finally subsiding. Management expects capital investments to shrink from $23.6 billion in 2023 to a range between $21 billion and $22 billion this year.
More revenue from subscribers and less capital investment is a formula for increasing profits that can be used to raise AT&T's dividend payout. With its yield already high, investors who buy this stock now to hold over the long run could realize heaps of passive income.
