The S&P500 The index will reach new all-time highs in 2024, which has resulted in the average dividend yield falling to a paltry 1.2%. Income investors can do much better, with some particularly attractive options currently available among somewhat unloved stocks such as Enbridge(NYSE: ENB), Toronto Dominion Bank(NYSE:TD)And Hormel food(NYSE: HRL).
Here’s a quick primer on these three dividend stocks to explain why you might want to put $1,000 or more into this trio today.
Enbridge is one of the largest midstream companies in North America, with a network of energy infrastructure that helps move oil and natural gas around the world. That’s the core of the business and represents about 75% of its earnings before interest, taxes, depreciation and amortization (EBITDA). The company charges fees for the use of its assets, so this company is a very reliable cash flow generator. This strong foundation is part of the reason why Enbridge has been able to increase its dividend (paid in Canadian dollars) every year for 29 consecutive years.
The dividend yield stands at a lofty 6.4%, which is well above the energy sector average of around 3.4%. That’s partly because pipelines are slow-growth businesses. But there’s something strange going on here, because Enbridge gets about 22% of its EBITDA from natural gas companies and 3% from clean energy. This is a deliberate move by management to move with the world toward cleaner energy options.
It also puts Enbridge in a strange position for investors because it’s not a pure play on whatever it does. If you can handle owning a reliable high-yield dividend stock that goes its own way (which also happens to be the direction the broader world is going), you might want to get to know Enbridge today.
The next stock is Toronto-Dominion Bank, better known as simply TD Bank. It has a dividend yield of almost 5.3%, compared to 2.5% for the average bank. Meanwhile, TD Bank has paid a dividend every year for more than 100 years and managed to maintain its dividend during the Great Recession, a period that forced major U.S. banks to cut their dividends. It is also a top-10 bank in North America and the No. 2 bank in Canada based on customer deposits.
So why is the yield more than double the industry average? TD Bank has just been fined about $3 billion by US regulators for failing to prevent its US bank from being used for money laundering. That’s bad. US regulators have also imposed an asset ceiling on TD Bank, which will limit its ability to grow in the US market. That’s worse.
However, TD Bank has the money to pay the fine and the US company is only part of the overall bank. The coming year will be a tough one financially for corporate America as it adjusts to the cap. But it is very likely that TD Bank will survive this period and eventually regain the confidence of regulators and investors. If you can hold your nose while you hit the buy button, you’ll be paid very well to wait for a reversal with fairly low risk.
Consumer goods maker Hormel Foods is best known for owning SPAM, but its protein-focused branded food portfolio is large and spread across the grocery aisle. It also has an equipment business that sells pre-cooked meat products to restaurants. It is also a very elite Dividend King, with annual dividend increases for up to 58 years. The dividend yield currently stands at 3.5%, which is near the highest level in the company’s history.
What’s going on? The food manufacturer is not firing on all cylinders at the moment, as it faces rising costs (which it has not been able to adequately offset with price increases), a slow pandemic recovery in China, bird flu and the purchase of the Planters. brand, just as the nut segment of the snack category was starting to slow down. These are all survivable problems; you don’t become a Dividend King without going through some rough patches along the way.
Meanwhile, the average consumer staples stock has a dividend yield of just 2.5%. Given its long-term history in this area, dividend investors should probably give Hormel the benefit of the doubt as the company works through a rough patch.
There are no guarantees on Wall Street, but Enbridge, TD Bank and Hormel have been highly reliable dividend stocks for decades. Of course, there are issues to consider with each type, but that’s exactly why their returns are so attractive. Even good companies have bad periods, and that’s exactly when contrarian investors typically get in. If you currently have $1,000, $10,000, or $100,000 to invest, one or more of these high-yield dividend stocks could be a very smart purchase for your portfolio today.
Consider the following before purchasing shares in Enbridge:
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Reuben Gregg Brewer has positions in Enbridge, Hormel Foods and Toronto-Dominion Bank. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool has a disclosure policy.
The Smartest Dividend Stocks to Buy Now with $1,000 was originally published by The Motley Fool
