Dividends are the unsung heroes when it comes to making money and building wealth in the stock market. They may not be as sexy or attention-grabbing as high-flying growth stocks, but they can be just as rewarding, especially over time.
If you’re looking for dividend stocks to add to your portfolio, you might want to consider the following two companies. They all have high dividend yields and are all leaders in sectors that are likely to be around for a long time. Investing $500 in each could net you about $65 in annual income at current yields.
1. Altria Group
Tobacco giant Altria Group (NYSE:MO) is one of the highest-yielding dividend stocks in the US S&P500 for some time now. The quarterly dividend is $1.02 per share and offers a forward yield of over 8%. For perspective, the average dividend yield of the S&P 500 is just above 1.3%.
When Altria announced a dividend increase in August, it marked the 55th consecutive year the company has increased its payout. It is one of only 54 companies in the stock market to achieve Dividend King status, making it an elite company when you consider the thousands of companies on US stock exchanges.
Having an attractive dividend is one thing. But it’s even more impressive if you manage to keep raising an attractive dividend, which Altria has done: nearly doubling it over the past decade.
Altria has had a strong position in the cigarette industry for some time. The number of smokers in the US has been steadily declining, impacting volume, but the pricing power the country can exercise has allowed the country to offset this decline and maintain a healthy financial situation.
The company must find viable smoke-free options to maintain its leadership position in the long term. It failed with its $12.8 billion Juul investment (putting lightly), but its recent vaping venture, NJOY, has made positive progress. In the second quarter, shipment volume of NJOY consumables increased 14.7% to 12.5 million units, and shipment volume of NJOY appliances increased 80% to 1.8 million units. This brought the total in the first half of 2024 to 23.4 million and 2.8 million respectively.
Cigarettes will be the mainstay of Altria’s business for the foreseeable future. However, it is encouraging to see that it is making the investments necessary for long-term success. In the meantime, investors can enjoy the company’s lucrative dividend, which is expected to continue rising in the coming years.
2. AT&T
AT&T (NYSE:T) is receiving praise from investors for its improved financial picture after several turbulent years caused by a misguided decision to get involved in the media and entertainment industry. The company offloaded its stock, sold its underperforming assets and returned to its telecom roots, and the results are paying off. The stock is up more than 26% this year (as of Oct. 21), marking its best stretch in a while.
Even after AT&T cut its dividend by nearly half in spring 2022, it remains one of the more attractive dividends in the S&P 500. The quarterly payout is $0.28, with a forward yield of just over 5%.
The high payout had investors concerned that AT&T might have left itself too weak to maintain its dividend. However, recent financial performance suggests these concerns may be overstated.
AT&T has not only managed to pay down much of its long-term debt in recent years, but has also generated encouraging free cash flow (which is where dividend payments should ideally come from).
In the latest quarter, AT&T generated $4.6 billion in free cash flow while paying out about $2.1 billion in dividends. That payout ratio is lower than what the company has historically.
The company will rely on its fiber optic business for growth. It won’t generate the revenue that the postpaid phone business will generate, but it is an area that remains underutilized and represents the next phase in providing high-speed internet and broadband connectivity.
AT&T hasn’t increased its dividend since it cut it a few years ago, but at the company’s current pace, I’m confident that won’t be off the table in the relatively near future. When (or if) this happens remains to be seen, but the current dividend is still one that investors can appreciate.
Should You Invest $1,000 in Altria Group Now?
Consider the following before purchasing shares in Altria Group:
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Stefon Walters has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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