Passive income is a powerful tool for building long-term wealth and securing financial freedom. High dividend yield stocks offer investors an effective way to generate steady cash flow without active management or day-to-day involvement.
Success in dividend investing depends on identifying companies that offer attractive yields and have the financial strength to maintain and potentially grow their payouts over time. These rare finds can become cornerstone investments, providing reliable income streams for decades.
Two stocks are currently shining in the high-yield landscape, each yielding more than 5% with intriguing long-term prospects. Let’s take a look at why these dividend powerhouses deserve more attention from income-focused investors.
Verizon: A telecom giant with a juicy yield
Verizon Communications (NYSE: VZ) presents a compelling case for income-oriented investors given its robust 6.07% dividend yield. The telecom giant has an 18-year streak of consecutive dividend increases and recently raised its quarterly payout to 67.75 cents per share, despite its 100% payout ratio.
Verizon’s strength comes from its dominant position in the U.S. wireless market, with approximately 40% market share of the postpaid phone market. This scale allows Verizon to generate industry-leading margins and returns on capital, which supports its generous dividend payments.
The company’s shares have risen more than 18% so far this year, likely benefiting from investors’ rotation into select high-yielding dividend stocks ahead of expected rate cuts. While Verizon faces stiff competition and challenges in its wireline business, its extensive fiber network assets and 5G technology offer growth potential.
Verizon’s focus on wireless service revenue growth, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) expansion and free cash flow generation reinforces its commitment to maintaining an attractive dividend. With shares trading at just 9.5 times forward earnings, the stock also offers a significant margin of safety in the event of a market-wide downturn.
This combination of high returns, growth potential and attractive valuation makes Verizon an attractive passive income investment.
Pfizer: A pharmaceutical giant with an attractive return
Pfizer (NYSE: PFE) offers passive income investors a substantial dividend yield of 5.69%. The pharmaceutical powerhouse also has a vast portfolio of over 350 marketed drugs and 113 clinical trial candidates, with a global footprint spanning over 200 countries.
Yet recent challenges, largely stemming from declining franchise sales due to COVID-19, have hit Pfizer shares hard. The drugmaker’s share price has fallen more than 50% from its three-year peak, potentially creating an attractive value opportunity. Currently, Pfizer trades at just 9.6 times expected 2026 earnings.
While Pfizer’s 15-year streak of consecutive dividend increases is impressive, its current 436% payout ratio raises questions about sustainability. Management has addressed these concerns head-on, reaffirming its commitment to a top-tier dividend and implementing a $4 billion cost-cutting initiative to strengthen its balance sheet during the post-COVID transition.
Looking ahead, Pfizer’s future largely depends on the fate of its clinical pipeline, particularly its slate of potential blockbuster cancer treatments. Success in this fast-growing market segment could significantly improve the company’s financial outlook and bring its payout ratio closer to its historical average of 50%.
Pfizer’s status as an economically insensitive stock, combined with its high yield and promising pipeline, makes it an interesting option for those seeking steady income and long-term portfolio stability. Furthermore, the pharma’s rock-bottom valuation should provide a significant margin of safety in the event of a market-wide correction.
Overall, Pfizer appears to be a good candidate for a long-term passive income portfolio.
Should You Invest $1,000 in Pfizer Now?
Before you buy Pfizer stock, here are some things to consider:
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George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
2 High Yielding Dividend Stocks That Can Generate Passive Income for a Lifetime was originally published by The Motley Fool
