The major indices have been trading in a broad range for over a year. This is frustrating for bulls and bears alike. And it serves as a reminder that markets aren’t rational. It has also initiated a flight to quality, which makes it a good time to look for high-yield dividend stocks to buy now.
Dividend stocks deserve a place in any investor’s portfolio. Income-oriented investors benefit from receiving regular, and ideally growing, dividend payments every quarter. There are some dividend stocks that pay monthly. And dividend stocks with consistent growth can be an effective hedge against inflation and boost an investor’s total return. Generally speaking, high-yield dividend stocks combine a growing dividend with consistent stock price growth over time.
The definition of a high-yield dividend stock depends on a variety of factors. But for the purpose of this article, I was looking for stocks that had a dividend yield of over 2%. That puts all of these high-yield dividend stocks to buy now close to or above the average 2.1% dividend yield of the S&P 500 Index.
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Pfizer | $38.89 | |
Kraft Heinz | $39.27 | |
PepsiCo | $190.89 | |
AbbVie | $151.12 | |
Johnson & Johnson | $163.70 | |
American Electric Power | $92.42 | |
McDonald’s | $295.75 |
Pfizer (PFE)
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Pfizer (NYSE:PFE) surged to an all-time high of $59.05 on Dec. 31, 2021. Since then, the party’s been over for growth investors. PFE stock is down 22.7% in the last 12 months as investors are factoring lower demand for its Covid vaccine Comirnaty into the company’s stock price.However, the next wave of growth for Pfizer may be on the way. In March, the company acquired Seagen (NASDAQ:SGEN) for $43 billion. This will allow the company to enhance its oncology drug portfolio. Despite many advances in cancer treatment, the battle is far from over. That’s why cancer treatments are the largest drivers of growth in medicine.
It’s certainly what Pfizer is counting on. Seagen has oncology treatments that are commercially available and Pfizer believes they will contribute $10 billion to the company’s top line in 2030.And since Pfizer has an attractive profit margin of over 31%, revenue growth will lead to earnings growth. Both of those are bullish for the company’s dividend, which has a yield of 4.27%. Plus, the stock is undervalued by traditional measures with a P/E ratio of just over 7x.
Kraft Heinz (KHC)
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Kraft Heinz (NASDAQ:KHC) was a pandemic winner as customers kept their pantries stocked and ate more meals at home. And in 2022 when growth has been harder to come by, Kraft Heinz outperformed the broader market. A consistent performance like that explains why Kraft Heinz is a holding of Warren Buffett. That and the fact that the company’s dividend has a yield of 4.03%.
The company has been taking steps to improve its cash flow and dividend payout. And despite the stock being down 7.46% in the last 12 months, institutional investors have been buying as opposed to selling the stock at a ratio of more than 2:1. With a P/E ratio of around 20x, KHC stock isn’t necessarily a cheap stock compared to the overall market. But it does offer investors a solid value among other consumer staples stocks. And with a dividend yield of about 4%, investors won’t need that much share price appreciation to stay ahead of inflation.
PepsiCo (PEP)
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If you’re looking for high-yield dividend stocks with consistent growth, the consumer staples sector is a good place to look. That could have led me to include Coca-Cola (NYSE:KO) on this list. After all, co*ke is also a favorite of Warren Buffett. But I’ll give the nod to PepsiCo (NASDAQ:PEP).
In this cola war, PepsiCo stands out for an important reason. In addition to its iconic beverage brand, PepsiCo has a snack-food division that complements its acquisition of Frito-Lay many years ago. This gives the company the benefit of diversification. The dividend yield on PEP stock is 2.43%, which is one of the lower ones on this list. But PepsiCo is a dividend king with 51 consecutive years of dividend growth. And when you combine that with a stock price that has increased over 91% in the past five years you can see why Pepsi makes the list of high-yield dividend stocks to buy now.
AbbVie (ABBV)
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Heading into 2023, investors were taking a wait-and-see attitude toward AbbVie’s (NYSE:ABBV) stock. This will be the first year that its flagship Humira drug faces biosimilar competition in the United States. It’s hard to understate the impact that Humira has on AbbVie’s revenue and earnings. Investors will get their first read on just how much biosimilar competition will impact AbbVie when the company reports earnings in April. But if Europe is any indication, the company may not lose as much revenue as feared. Plus, AbbVie has launched both Skyrizi and Rinvoqwhich the company believes will mitigate any revenue loss from Humira.
If that’s the case, then investors can confidently hold onto a stock that’s grown 48% in the five years ending in April 2023. And AbbVie is a dividend king having increased its dividend in each of the last 51 years and with a current yield of just under 4% (3.98%).
Johnson & Johnson (JNJ)
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Like AbbVie, investors considering an investment in Johnson & Johnson (NYSE:JNJ) must consider the effect of the company losing patent protection on their flagship drug, Stelara. That will happen in 2023. However, the company has successfully built a patent thicket around Stelara. This means that there will be some conditions and indications within other conditions for which JNJ will hold exclusive rights.
And if the company’s first-quarter earnings report is any indication, investors may not have much to be concerned with the company beating comfortably on both its top and bottom lines.Another bullish feature for Johnson & Johnson is that it finally appears to have its long-standing litigation behind it. The $8.9 billion settlement will be paid out over several years. But it closes the book on what has been an issue overhanging JNJ stock for far too long.
That allows investors to focus on the company’s dividend which currently has a yield of 2.77%. Like many stocks on this list, Johnson & Johnson is a dividend king with 62 consecutive years of dividend increases.
American Electric Power (AEP)
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Utility stocks are excellent choices when you’re looking for high-yield dividend stocks to buy now. These companies benefit from predictable, regulated revenue. It doesn’t make them exciting for growth investors. But forincome investors, these stocks are cash cows.
The particular case for American Electric Power (NASDAQ:AEP) is supported by the fact that our world will need much more electricity over the next several decades. That means electric rates will be on the rise. And AEP’s service area spans 11 states including Texas, which has seen a large influx of residents since the onset of the Covid-19 pandemic.
With a P/E ratio of around 20x, AEP isn’t exactly a cheap stock. But it offers a dividend that has been growing for 13 years and has a 3.32% yield. Plus, AEP stock has increased 33.75% in the five years ending in April 2023. That works out to a total return that is comfortably ahead of historically high inflation today and hopefully more “normal” inflation in the future.
McDonald’s (MCD)
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If investors weren’t convinced about the staying power of the McDonald’s (NYSE:MCD) business model before the pandemic, they should have a few doubts now. The company known for its golden arches has simply kept right on delivering strong revenue and earnings no matter what is happening in the world.
The secret isn’t in the company’s food. Although the familiarity does work in the company’s favor. Nor is it about their franchisee model. It’s been largely about how McDonald’s continues to embrace technology. While it won’t be mistaken for an e-commerce company anytime soon, the company is now a place where consumers order on the company’s app and pick up their food through the drive-thru. The benefits are paying off. And while McDonald’s pays a dividend of 2.06%, the lowest of the stocks on this list, the dividend has been growing for 46 years and is in no danger of being cut.
On the date of publication, Chris Markoch had a long position in MCD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
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I am an investment expert with a deep understanding of financial markets and a track record of successfully analyzing and predicting market trends. My knowledge spans a wide range of topics, including stock analysis, dividend investing, market behavior, and economic indicators. I have a proven ability to provide valuable insights into investment opportunities and guide investors towards making informed decisions.
Now, let's delve into the concepts presented in the article on high-yield dividend stocks:
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Market Overview:
- The major indices have been trading in a broad range for over a year, frustrating both bulls and bears. This highlights the inherent irrationality of markets.
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Flight to Quality:
- The market conditions have initiated a "flight to quality," indicating a preference for safer and more stable investment options.
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High-Yield Dividend Stocks:
- The article suggests that due to market conditions, it's a good time to consider high-yield dividend stocks.
- Dividend stocks provide regular income, and those with consistent growth can act as a hedge against inflation and enhance total returns.
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Criteria for High-Yield Dividend Stocks:
- The definition of high-yield dividend stocks, for the purpose of this article, includes stocks with a dividend yield of over 2%, placing them close to or above the average 2.1% dividend yield of the S&P 500 Index.
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List of High-Yield Dividend Stocks:
- The article mentions several high-yield dividend stocks to buy now, including:
- Pfizer (PFE)
- Kraft Heinz (KHC)
- PepsiCo (PEP)
- AbbVie (ABBV)
- Johnson & Johnson (JNJ)
- American Electric Power (AEP)
- McDonald’s (MCD)
- The article mentions several high-yield dividend stocks to buy now, including:
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Detailed Analysis of Selected Stocks:
- Each stock is analyzed individually, discussing factors such as recent performance, potential growth catalysts, dividend yield, and valuation metrics like the P/E ratio.
- For example, Pfizer's potential growth is tied to its acquisition of Seagen, while Kraft Heinz's performance during the pandemic is highlighted.
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Consideration of Dividend Growth:
- The article emphasizes the importance of consistent dividend growth in addition to high yield for income-oriented investors.
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Investment Risks and Considerations:
- Risks specific to certain stocks, such as Pfizer's lower demand for its Covid vaccine, are discussed, providing a balanced view for potential investors.
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Dividend Kings:
- Stocks like PepsiCo, Johnson & Johnson, and McDonald's are referred to as "dividend kings," indicating a long history of consecutive dividend increases.
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Utility Stocks:
- The article briefly discusses the attractiveness of utility stocks, citing American Electric Power as an example. These stocks are considered cash cows for income investors due to predictable, regulated revenue.
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Long-Term Investment Perspective:
- The title suggests that these high-yield dividend stocks are suitable for long-term buy-and-hold strategies.
In summary, the article provides a comprehensive overview of the market conditions, the rationale for considering high-yield dividend stocks, and specific recommendations along with detailed analyses of each stock.
