With the market being whipsawed, now is a good time to look at some stocks with attractive dividends that could be a ballast in the rough seas. Tariffs remain front and center, and are likely to be the main near-term and medium-term driver of stocks.
Let's look at four stocks with attractive yields to buy right now.
Energy Transfer and Enterprise Products Partners
NYSE: ET
Key Data Points
Two of the largest midstream master limited partnerships (MLPs) in the U.S., Energy Transfer (ET 1.24%) and Enterprise Products Partners, (EPD 1.43%) both pay robust distributions that are well covered by their distributable cash flow, which is operating cash flow minus maintenance capital expenditures (capex). Energy Transfer carries an 8.3% forward yield, while Enterprise's yield is 7.4%.
Both companies are benefiting from increasing natural gas demand and have a largely fee-based business (over 80%), often with minimum volume commitments or take-or-pay provisions (the company who wants to ship its product has to pay for their reserved space in a pipeline even if it doesn't use it). This helps protect their cash flow during periods of energy or economic weakness. Both also have solid balance sheets, and their distributions are well covered by their distributable cash flow. Enterprise, meanwhile, has a long history of navigating various energy and economic environments, increasing its distribution 26 straight years.
That said, tariffs will impact the companies. Both have moved into growth mode, given the opportunities in front of them. Tariffs on products like steel will increase project costs. This could hurt project returns if they are unable to pass through the costs to customers. Both companies also export natural gas liquids (NGLs), which could be impacted by any retaliatory tariffs.
These are two solid companies trading at attractive valuations that are poised to benefit from the continued demand for natural gas stemming from the rise of artificial intelligence (AI). They also trade at attractive valuations. Energy Transfer trades at an enterprise value (EV)-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 8.1 times, while Enterprise trades at 9.8, using the same financial metric. This is well below the average 13.7 times EV/EBITDA multiple that midstream MLPs traded at between 2011 to 2016 when they had worse balance sheets and narrower distribution coverage ratios.
Image source: Getty Images,
Philip Morris International
NYSE: PM
Key Data Points
Philip Morris International (PM 0.07%) is a growth stock in a defensive industry with an attractive dividend. The stock currently has a 3.6% yield.
The company has very minimal exposure to tariffs. Its traditional cigarettes and IQOS heated tobacco units (HTUs) are sold and manufactured outside of the U.S., while its Zyn nicotine pouches are sold and manufactured within the U.S. It also has minimal exposure to China where it licenses its Marlboro brand to the China National Tobacco Company (CNTC), which manufactures it along with its own Chinese domestic brands.
Its growth is being driven by its smokeless portfolio led by Zyn and IQOS. Zyn has been red hot, with nicotine pouch volumes climbing 46% last quarter to 183.8 million cans, while Philip Morris forecasts Zyn volumes to increase 34% to 41% this year, or 780 million to 820 million cans. IQOS volumes, excluding distributor and wholesaler inventory movements, rose 13% last quarter. The company is looking to bring IQOS to the U.S. after buying back the rights from Altria, so this could be a nice future growth driver.
The cherry on top, though, is that both Zyn and IQOS have much better unit economics than the company's combustible cigarettes. According to Philip Morris, Zyn has six times the "product contribution level" as cigarettes, while IQOS has between 2 to 2.5 times.
At the same time, the stock is attractively valued, trading at a forward price-to-earnings (P/E) ratio of just over 21 times this year's analyst consensus, with a price/earnings-to-growth (PEG) ratio of under 0.4. Stocks with PEGs below 1 are typically considered undervalued.
Verizon
NYSE: VZ
Key Data Points
If there is one thing people are unlikely to give up if a recession hits, it's their cellphone service and broadband connections. This is why Verizon Communications (VZ +0.28%) and its 6.4% yield are attractive in this current market.
The telecom company has seen modest overall revenue growth due to churn from its legacy consumer and business wireline businesses, as well as the end of the Affordable Connectivity Program, which helped subsidize wireless internet services for lower-income households. However, it has seen strong subscriber growth for both its wireless and broadband businesses.
Verizon is also looking to leverage its nework to serve the artificial intelligence (AI) market with its AI Connect solution, where it will use its existing fiber and 5G assets to help deliver AI workloads. The company notes that Alphabet and Meta Platforms are using Verizon's AI Connect solution to add capacity to support their AI workloads. The company is also in the process of buying Frontier Communications, which will expand its fiber network and support its "intelligent edge network" strategy for AI and the Internet of Things (IOT). In addition, Verizon recently said that using AI assists from Alphabet was reducing customer service call times, giving representatives more time to sell additional products, which is leading to more sales.
More than anything, though, Verizon is a cash-flow machine. It generated $19.8 billion in free cash flow last year, well above the $11.2 billion in dividends it paid out. This gives the company the opportunity to continue to raise its dividend, buy back stock, pay down debt, or invest in its business. At a forward P/E of 9 times, the stock is trading well below rival AT&T's valuation with similar revenue growth, making it a strong stock to own in this market.
