Money market funds and T-bills offer tough competition to high-dividend stocks with short-term rates above 5%, but they’re not the only game in town.
There are a handful of stocks that comfortably exceed the 5.4% yield on T-bills and also trade on the cheap, at less than 10 times the expected 2023 EPS.
They are the six highest-yielding stocks in the S&P 500:
Walgreen Boots Alliance
(WBA). All six stocks are in the red this year, with Key, Truist and Walgreens down more than 25%.
Altria produces 8.8%; Verizon and AT&T, 7.9%; KeyCorp, 7.5%; Walgreens Troist 7.3%. They are the only stocks in the S&P 500 with returns above 7%.
The huge returns come with some risk, but all six companies comfortably cover their dividends. Departments remain obligated to make payments.
Altria, whose shares trade at about $43, brings in about nine times expected 2023 earnings of $5 per share. The company takes its huge earnings seriously and aims to grow it at an average single-digit annual rate as its business transitions toward smoke-free products.
Its lower valuation reflects concerns about its core cigarette business, which is led by Marlboro, given continued declines in sales volume. The ultimate profitability of smoke-free projects is a second concern.
In recent years, Altria has increased its August payout, so the dividend may be increased soon. The Bloomberg consensus calls for an increase in quarterly payments to 98 cents from 94 cents this month.
Shares of AT&T and Verizon, at about $14 and $33 respectively, are down more than 15% this year. Two factors are behind this: concern about competitive pressure in the wireless field and, more recently, potential lead liabilities in older underground cables, a concern sparked by reports in the Wall Street Journal.
Barron argue That earnings look safe, that’s what management thinks, too. Verizon talked about potential dividend increases on the July earnings conference call.
Shares of Key and Truist, meanwhile, have been taking a beating along with those of other regional banks this year. Major shares are trading around $11, and Truist at $34.
Their second-quarter earnings disappointed analysts at KBW, but both prioritized the dividend. Truist, in particular, comfortably covers its payments. Both stocks trade at about nine times expected earnings for 2023 and have good regional banking franchises.
Walgreen’s also had a disappointing year. In June, the company cut its earnings forecast for fiscal 2023 by more than 10%, to about $4 a share. The stock is so unfavorable that it is trading at about seven times expected earnings for the fiscal year ending this month.
The company is “very committed to maintaining our investment grade (credit) rating and earnings,” James Kehoe, CFO, said on its most recent earnings conference call in June.
All six stocks offer good returns. They can act as turnaround stories in a market that is questioning their prospects.
Write to Andrew Bary at firstname.lastname@example.org
(tags to translation) Communication Services