If you want a good dividend, you can aim much higher than the 1.4% yield that the S&P 500 averages. In some cases, you can earn a lot more than the average -- without even having to take on much more risk. While high-yielding stocks sometimes have the connotation of being risky investments, that isn't always the case.
Three stocks I'd feel comfortable relying on for dividend income that yield more than 6% today are AT&T (T -0.84%), Enbridge (ENB -0.65%), and Western Union (WU -3.62%). Here's how high their yields are today and why these can be great income stocks to buy and hold.
NYSE: T
Key Data Points
AT&T
Telecom giant AT&T hasn't been getting a lot of love from investors in recent years, and that has created an attractive buying opportunity. At 6.1%, the stock provides a high payout and its valuation remains cheap. Shares of AT&T trade at just 10 times the company's trailing earnings.
AT&T's free cash flow has been rising, however, which is important for investors because it indicates how much money the company has available to either invest in its own operations or to distribute back out to shareholders. It has been raising guidance for free cash flow, and during the first three months of the year, free cash was $2.1 billion higher than it was in the prior-year period. AT&T's payout ratio based on earnings is also encouraging, now at around 60%.
Not only does the dividend look safe, but I wonder if the company will get back to raising its payout this year given how well the business has been doing lately. AT&T stock is up 8% this year but it could go much higher once interest rates come down. But even if that doesn't happen until next year, this is an excellent buy-and-hold stock to simply hang on to for the long haul.
NYSE: ENB
Key Data Points
Enbridge
Another good dividend stock to own is Enbridge. The pipeline company plays a major role in the oil and gas industry, with long-term contracts giving the business a lot of stability. It has also been expanding its position with the purchase of multiple businesses from Dominion Energy, which management has referred to as a "once-in-a-generation opportunity."
Not all investors, however, are thrilled with the Canadian-based company's $14 billion acquisition at a time when interest rates and the cost of borrowing is high -- shares of Enbridge are down 1% this year despite what's been a strong year for the markets. But Enbridge is a company that warrants investors' trust, having met its guidance for a remarkable 18 consecutive years. The company has also raised its dividend for 29 straight years, and CEO Greg Ebel says it is "well positioned to grow earnings and dividends for shareholders for years to come."
Although the stock's yield is up to 7.5%, Enbridge isn't as risky of an investment as it appears at first glance. In the trailing 12 months, it has generated free cash flow totaling 8.6 billion Canadian dollars and it has paid out CA$7.8 billion in dividends during that period.
NYSE: WU
Key Data Points
Western Union
Western Union is a big name in cross-border payments and transfers. Its brand has become synonymous with transferring money. But in recent years, there have been more ways for consumers to do that as tech companies have launched more apps to make it easier to send cash, which has made growth a challenge for Western Union.
But the company has been innovating with a banking app that allows users to send money to over 200 countries and territories. During the first three months of the year, Western Union's revenue grew by 1% to roughly $1.1 billion. But its branded digital revenue experienced year-over-year growth of 9%. And there was 13% growth in branded digital transactions.
Despite rising competition, Western Union is still not done growing. This could make for an underrated stock to load up on, especially when you factor in its dividend, which yields 7.3% right now. The stock has a manageable payout ratio of 56% and it's cheap to own, trading at less than 8 times earnings.
