Collecting an above-average dividend payment can sometimes entail risks. High-yield stocks may see cuts in their payouts if a company’s underlying financials aren’t strong enough to support dividend payments. But that doesn’t mean all high-yield stocks are dangerous investments.
Two good examples of stocks that pay more than 6% and can still be ideal long-term options for retirees are: Pfizer (NYSE:PFE) And Verizon Communications (NYSE: VZ). Although their returns are high, these stocks are not as risky as they seem. This is why.
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The bearish outlook for the future has led to Pfizer’s share price falling more than 10% this year, despite what has been a strong year for the markets overall. The top healthcare stock is trading near a 52-week low, and its yield is incredibly high at around 6.8%.
Protecting that dividend is a priority for CEO Albert Bourla, who earlier this year called the payout a “sacred cow” for the company, recognizing its importance to investors who rely on the recurring payment. Pfizer has paid dividends for 344 consecutive quarters, and it has been one of the most stable income stocks in healthcare.
The company recently raised its 2024 guidance in light of strong earnings numbers. However, investors remain concerned about the future, including how the country will deal with a new US administration and the possible implications that changing regulations could have on its business, and how it will grow as it faces multiple patent cliffs .
The reason I’m not concerned about Pfizer is that no matter who is in power, there will be a need for constant and ongoing innovation in healthcare. Pfizer has been a top name in that regard for decades. The acquisition of oncology company Seagen last year underlined its aggressive growth strategy, as the move cost Pfizer $43 billion. It has also pursued smaller companies over the years in an effort to strengthen its pipeline and boost its growth prospects.
As for patent cliffs, they are something that every healthcare company with a top drug will have to worry about at some point. But by focusing on expanding and diversifying its business, Pfizer is in great shape to meet these challenges. Bourla previously said the company could generate up to $25 billion in revenue from new drugs and acquisitions by 2030, which will help offset losses from generics.
The company’s earnings numbers were choppy due to writedowns and fluctuating COVID-19-related sales. But last quarter, Pfizer generated $6.1 billion in free cash flow, which is more than double what it paid out in dividends ($2.4 billion). While the company is undoubtedly facing some challenges, the company is in much better shape than bearish investors would like to believe.
Retirees can still get a mouthwatering return from Verizon, which currently pays 6.5%. The telecommunications company has also increased its dividend for eighteen years in a row. The most recent increase occurred in September, when the company increased its dividend by 1.9%. While that’s not a huge increase, it’s still a testament to Verizon’s commitment to increasing its payout.
It also comes at a time when the company is not growing as quickly. This year, the company expects a growth rate of between 2% and 3.5% in its core wireless services business. But in the long run, there could be more room for Verizon to grow bigger. Earlier this year, the company announced plans for an acquisition Border communicationwhich will expand its fiber footprint to more markets. The $20 billion deal would be accretive to both Verizon’s top line and revenue once it closes. Frontier shareholders have approved the deal and it is expected to close in early 2026.
Verizon is a top name in the telecom sector, but the stock has been a disappointing buy in recent years as rising interest rates have turned investors bearish on capital-intensive companies. As interest rates continue to fall and investors look for safety, it may only be a matter of time before Verizon stock starts to recover. While the stock isn’t at year-to-date lows, it’s still an incredibly cheap buy. Investors can buy it today for less than nine times next year’s estimated earnings (based on analyst expectations).
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*Stock Advisor returns November 18, 2024
David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
2 Dividend Stocks Paying More Than 6% That Retirees Can Safely Buy and Hold for Years Originally published by The Motley Fool
