Income investing works best when dividends connect to sustainable business models rather than yield traps. The strongest opportunities combine high current income with credible catalysts that support future payouts, whether that's a successful transformation already rewarded by the market or a temporary setback creating a bargain shopping opportunity.
Two stocks deliver this combination: a tobacco company successfully executing its smoke-free transition with rising dividends to prove it, and a pharmaceutical giant trading at a distressed valuation despite stabilizing fundamentals and renewing growth initiatives. Both offer high yields -- one at 3.84% with momentum, the other at 7% with recovery potential.
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Here's a nuts-and-bolts overview of these two top high-yield dividend stocks.
The smoke-free execution story with rising dividends
Tobacco giant Philip Morris International (PM +0.92%) raised its dividend 8.9% in September to an annualized $5.88, delivering a current yield of 3.84%. The increase signals confidence in a transition that's actually happening rather than just promised.
NYSE: PM
Key Data Points
Smoke-free products generated 39% of total revenue in 2024, up from negligible levels a decade ago. Iqos heated-tobacco devices dominate in Japan and parts of Europe. ZYN nicotine pouches, acquired through Swedish Match, command the fastest-growing nicotine format in the U.S.
Management reports dozens of markets where smoke-free revenue already exceeds that of combustible cigarettes.
Recent developments strengthen the thesis. A pricing antitrust lawsuit targeting ZYN was dismissed with prejudice in 2025, removing uncertainty around the product's pricing power. And the Food and Drug Administration (FDA) withdrew its proposed menthol cigarette ban in January 2025, though nicotine-reduction rulemaking continues through an extended comment process.
Regulatory risk never disappears in tobacco. State-level menthol restrictions could emerge. Marketing rules for nicotine pouches face ongoing scrutiny. Tax increases remain perpetually possible.
But Philip Morris stock trades at under 19 times projected earnings compared to 29 times for the benchmark S&P 500. This relatively cheap valuation reflects the risks involved.
The deep-value recovery opportunity
Pharmaceutical titan Pfizer (PFE 1.39%) yields 7% and trades at roughly 8 times forward earnings, a bargain-level valuation more typical of distressed names. Yet management is guiding for 2025 revenue between $61 billion and $64 billion. And, after reporting second-quarter results, it raised 2025 guidance on adjusted earnings per share to a range of $2.90 to $3.10. While the top line is indeed moving in the wrong direction, Pfizer remains highly profitable and cash flow positive.
NYSE: PFE
Key Data Points
What's more, Pfizer's post-COVID reset created an opportunity for bargain hunters. As vaccine and Paxlovid sales normalized, the company's base pharmaceutical engine kept growing, led by pneumococcal disease vaccine Prevnar 20; RSV vaccine Abrysvo; ulcerative colitis treatment Velsipity; and the Seagen oncology portfolio, acquired in December 2023.
Most significantly, Pfizer reentered the market for obesity drugs through an agreement to acquire Metsera for $4.9 billion up front with contingent payments reaching $7.3 billion total. The company had discontinued its internal oral GLP-1 program, but the Metsera deal provides a different pathway into a market projected to reach hundreds of billions of dollars annually.
Still, execution risk is real. The stock's payout ratio, near 90%, leaves minimal room for earnings disappointments. Patent expirations also loom later in the decade. Lastly, the Inflation Reduction Act price negotiations apply pressure to margins, and it's unclear how politics more broadly will impact drug prices over the longer term.
The bottom line is that the Metsera acquisition must deliver to truly justify owning the stock for the long term. Otherwise, investors could end up owning another GSK: a pharma that was originally prized for its hefty yield but has chronically underperformed the broader market.
There are no 100% guarantees in light of Pfizer's mixed acquisition history, but the drugmaker does have a compelling risk-to-reward ratio at current levels.
The income opportunity
Philip Morris offers a steady transformation with a freshly raised 3.84% yield backed by smoke-free momentum. Pfizer provides immediate 7% income with turnaround optionality if its pipeline executes. Blended, a position split between both delivers over 5% yield, more than triple the S&P 500 average.
