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3 High-Yield Stocks at Rock-Bottom Prices

By Neha Chamaria, Chris Neiger, and Maxx Chatsko - Oct 31, 2018 at 1:07PM

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These top high-yield dividend stocks look too cheap to pass up now.

Income investors drool over high-yield stocks. That isn't surprising, given that a dividend yield, after all, denotes the amount in annual dividends one receives relative to the stock's current price. A higher yield, therefore, translates into greater returns.

However, this relation between the dividend and stock price also means that yields rise when share prices fall. The recent volatility in the stock market, for instance, has given rise to some great opportunities for dividend lovers. But not all high yields are safe; so we asked three Motley Fool contributors to each identify a high-yield stock that they believe looks compelling right now. Here's why AT&T ( T -4.83% ), Brookfield Renewable Partners ( BEP -2.05% ), and Delek US Holdings ( DK -3.35% ) made the list.

Calling all dividend investors

Chris Neiger (AT&T): This telecom giant's stock is sitting at the bottom of the bargain bin right now considering its shares are trading at just nine times the company's forward earnings. Investors were likely put-off by AT&T wrestling with the Justice Department over its purchase of Time Warner, but that's in the past now, and AT&T is marching forward with all of the possibilities the acquisition could bring.

AT&T's most significant opportunity is in bundling its newly acquired channels (including CNN, TNT, HBO) to get wireless and Internet subscribers to sign up with AT&T over other rivals. Bundling content with wireless services, in particular, has become a popular strategy among wireless carriers recently, and AT&T's newly acquired content assets could go a long way toward helping the company attract new customers -- and keep existing ones.

Dollar notes rolled and planted in soil to denote income growth.

Image source: Getty Images.

That strategy may become even more important as AT&T and its rivals gear up for the upcoming 5G wireless land grab. AT&T says it will launch 5G -- which will have faster speeds and lower latency than 4G LTE -- in 12 cities by the end of this year, with an additional seven cities getting the new wireless service in 2019. Combining a new, ultra-fast wireless service with popular content offerings from its Time Warner acquisition could be winning combination for AT&T.

And of course, there's AT&T's very impressive dividend yield, which is just north of 6% right now and boasts 33 consecutive years of increases. AT&T's commitment to its dividend, its opportunities from its Time Warner acquisition and 5G, and the company's low valuation right now certainly make this stock worth considering for investors looking for a great deal.

A bet on the future of energy

Neha Chamaria (Brookfield Renewable Partners): The case for investing in renewable energy is getting stronger by the day, so you shouldn't miss a potential opportunity when a promising renewable energy play trades cheap. Brookfield Renewable Partners is a fine example, what with the stock dropping nearly 21% year to date.

President Donald Trump recently signed America's Water Infrastructure Act of 2018, which should provide a fillip to water companies. Brookfield Renewable should be one of them as it derives nearly three-quarters of its power generation from hydroelectric power and is one of the world's largest hydropower companies. In fact, hydropower is already the largest renewable energy generation source in the world, ahead of wind and solar, which makes the investing thesis for Brookfield interesting. Overall, Brookfield Renewable operates nearly 870 power-generating facilities across North America, South America, Europe, and Asia with a combined capacity of nearly 17,400 megawatts.

Brookfield Renewable is already growing at a steady pace: Management intends to grow funds from operations per unit at a compound annual rate of 8.5% through 2022, backed by rising margins, a strong pipeline, and inflation-indexed revenues. In its most recent quarter, the company reported 15% growth in FFO, and management is confident of growing dividends by 5% to 9% annually in the long run. I believe that dividend growth potential, a hefty yield of 6.7%, and the growth prospects for clean energy make Brookfield Renewable a solid long-term investing idea.

An oil stock down on its luck

Maxx Chatsko (Delek US Holdings): Opportunistic investors may want to pay close attention to the Brent-WTI spread, which is the price difference between crude oil priced at international and domestic benchmarks. A higher spread puts American crude oil -- and products refined from it -- at a hefty advantage when sold in international markets.

Investors took notice when the spread climbed to multiyear highs in the first half of 2018 (oil refining stocks soared in lockstep) and again when the spread abruptly collapsed at the end of June (taking oil refining stocks with it). For instance, shares of Delek US Holdings rose almost 75% from the beginning of the year to the end of June, but they have dropped 26% in the second half so far.

Oil pipelines.

Image source: Getty Images.

Here's an interesting observation: the Brent-WTI spread has quietly rebounded to reach the highest point since early 2014 (over $10 per barrel), but many oil refining stocks have continued sliding. While there's a higher degree of uncertainty in oil markets now than in the past, Delek US Holdings is one refiner that offers a persuasive long-term argument.

After merging with Alon USA Energy and selling off non-core assets, Delek US Holdings has concentrated its operations in America's coveted Permian Basin. Pipeline constraints and a sea of production growth have resulted in a nearly $20 per barrel spread between regional production and Brent crude prices. Considering the merger allowed the business to return to profitability in the first half of 2018, adding in a record regional crude oil spread could lead to an excellent end to the year. 

The recent industrywide slide means Delek US Holdings stock trades at several attractive valuation metrics. Operating strength could make the oil stock even more attractive by increasing its financial flexibility to continue paying down debt, gobbling up shares, and increasing dividend payments to grow the current 2.7% yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$22.73 (-4.83%) $-1.16
Delek US Holdings, Inc. Stock Quote
Delek US Holdings, Inc.
$14.88 (-3.35%) $0.52
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$35.64 (-2.05%) $0.75

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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