Many investors prefer dividend stocks. When a company pays a dividend, that usually indicates a steady stream of profits. It also creates stability as it reduces the risks that often come with individual equities. Dividends have also become popular in the 21st century as bank interest rates and bonds have often offered negligible interest payments.
Some companies, especially startups and tech companies, have resisted such payouts. However, in recent years, companies that once eschewed dividends, particularly in the technology sector, have embraced them. Other more traditional industries have a longer history of payouts.
Many of these dividend stocks have achieved “dividend aristocrat” status. That means they have hiked the payout for at least 25 consecutive years. Although that strongly implies that the company is stable, many companies maintain an attractive dividend stream without such a record.
The following seven stocks have not only earned such confidence, but they also offer payouts well above the S&P 500’s (.SPX) average dividend yield of 1.75%.
Automotive dividend stocks: Ford
At first glance, choosing Ford as one of these high-yielding dividend stocks may come as a surprise, given the auto industry’s issues. Moreover, changes in the dividend have become unpredictable as the payout seems to continually fluctuate. And with analysts’ mean estimate for Ford being a 4% average EPS decrease over the next five years, Ford stock will not set Wall Street on fire.
However, since the yield is 6.5% despite a recent dividend cut, F stock becomes difficult to ignore. The annual dividend now stands at 60 cents per share. The bad news is that it’s down from the 73 cents per share earned in 2018, taking F stock backs to its 2015 payout level.
But Ford stock gives investors a reason to forgive this payout history. Despite the high dividend, the stock trades at around 7.2 times forward earnings. The auto industry has developed a pattern of low price-to-earnings ratios. However, with that multiple, I would not expect significant declines in the stock. Also, that comes in well below the 10.2 average multiple over the last five years.
This leaves traders well-positioned to profit when the company reaches that average P/E ratio. Not only that, they earn a 6.5% return to wait, making a trade in Ford profitable for both growth and income.
Energy dividend stocks: Exxon Mobil
The ups and downs of the energy industry have made Exxon Mobil stock a proven winner among dividend stocks. Due to its diversification across the energy industry, it produces growth when oil prices move higher, yet has maintained profitability and dividend growth in times of more depressed energy prices.
Although oil prices have moved up and down throughout history, its 36-year history of payout hikes proves both its dividend aristocrat status as well as its underlying strength. This has also led to a generous payout. Its annual dividend of $3.48 per share yields 5%.
Analysts, on average, expect the company’s EPS to come in at $2.52 for 2019 before rebounding to $3.68 this year.
Once profits rebound, the cost of the dividend should again come in well below profit levels. As a $288 billion oil giant, it should continue to prosper amid diversification and changes across the energy industry.
Finance dividend stocks: KeyCorp
Much of the focus on bank stocks often leaves out regional banks such as KeyCorp. However, the Cleveland-based institution operates in 15 states, spanning several parts of the country. Like most banks, the financial crisis hurt KEY stock and nearly wiped out its dividend. Though KEY stock has not recovered to pre-crisis levels, it has slowly and steadily moved higher since the peak of the crisis in 2009.
After taking its annual dividend to just 4 cents per share following the crisis, KEY stock resumed annual payout hikes in 2011. It has increased the dividend every year since. For this year, payout stands at 76 cents per share. This takes the yield to 3.76%.
KEY stock has also traded in a range in the last three years. However, this could become advantageous for new buyers. The forward P/E ratio has fallen to just 9.3, much lower than the average multiple of 14.6 over the last five years.
Due to recent interest rate cuts, profit growth across the industry may face headwinds. However, analysts, on average, expect the company’s EPS to climb more than 10% this year. That should still produce enough of an improvement to continue payout hikes, helping it to maintain its appeal among dividend investors.
Pharmaceutical dividend stocks: AbbVie
AbbVie has struggled since patent expirations in some countries began to affect its key revenue driver, Humira. Since the stock peaked in early 2018, it has lost about 25% of its value. ABBV stock sank when ABBV announced its intent to purchase Allergan back in June. The $63 billion transaction, partially funded by share issuance, took ABBV stock down by 15% in a single day.
However, AbbVie has since recovered most of that lost value. It should also increase profits once Allergan becomes fully integrated into ABBV. It has also benefited dividend investors as the annual payout of $4.72 per share yields 5.3%. Moreover, due to its history as a division of Abbott Laboratories (ABT), it maintains a 46-year history of annual dividend increases.
Investors should profit from more than just dividend income with AbbVie. The decline over the last two years has taken the forward P/E ratio down to only 9.5. This seems low for a company that, on average, is expected to grow its earnings by 6.3% this year. As the company profits from the Allergan purchase and releases new treatments to replace lost income from Humira, investors should benefit on multiple levels from ABBV stock.
Retail dividend stocks: Designer Brands
Many shoe shoppers, and, for that matter, investors in dividend stocks, may not know the name Designer Brands. However, they probably know some of its stores such as DSW and brands such as Jessica Simpson or Lucky.
Like many retailers’ shares, DBI stock suffered amid intense competition from online retailers. However, after years of single-digit profit growth, analysts, on average, now expect its earnings to grow by 14.7% per year over the next five years.
DBI stock could also see a turnaround. Since 2013, it has mostly trended downward. It now trades around 80% below the peak of that year. However, due to this falling DBI stock price, investors can buy this income stream at about nine times forward earnings. Given that multiple and the double-digit profit growth, the declines for DBI should end soon.
This income stream also makes it one of the higher-yielding dividend stocks. Its $1 per share annual payout yields 6%. Although the company does not increase this dividend annually, it has risen slowly but consistently since DBI began making payouts in 2011.
Given the payout and the rising profit growth, DBI should soon become a stock to buy for both dividend and price growth.
Semiconductors dividend stocks: Qualcomm
Qualcomm’s chipsets turned this one-time startup into one of the top semiconductor companies. Many argue that its dominance of this niche makes it a monopoly, and lawsuits from both Apple (AAPL) and the U.S. Federal Trade Commission hampered the stock’s growth in recent years.
Operating in an industry sometimes hostile to dividends, its dominance of smartphone chipsets has helped to make it one of the more solid dividend stocks. The annual payout of $2.48 per share gives it a yield of 2.8% at current levels. Moreover, it has increased its payout every year since 2011. This includes the years where its dispute with Apple led to years of stagnant price growth in QCOM stock.
It has also beaten back these legal challenges because of one technology — 5G. The need for Qualcomm’s 5G chipsets promises to lead to massive earnings growth in coming years. It will likely boost QCOM stock even if the FTC does not rule in favor of Qualcomm. Some analysts project that this chipset market, forecast at just over $2.1 billion in 2020, will grow to almost $23 billion by 2026.
This should not only take QCOM stock much higher, but it could also lead to generous payout hikes in coming years.
Telecom dividend stocks: AT&T
AT&T stock has long suffered on many fronts. Cord cutting, intense competition in wireless and the need to spend tens of billions of dollars on a 5G network have curtailed profit growth.
However, the rollout of 5G has brought hope. T stock has risen by more than 25% over the last year. Despite the increase, it remains one of the potentially higher-yielding dividend stocks for new buyers. Its $2.08 yearly payout yields 5.3%.
Moreover, with 35 straight years of payout hikes, it has a dividend aristocrat status to maintain. This means investors can expect another increase in December, despite the challenges of recent years.
Furthermore, many sources indicate AT&T has explored getting rid of DirecTV. If this sale occurs, it could reduce AT&T’s very high debt load. This liability may partially explain why T stock trades at only 10.8 times forward earnings currently.
It also brings its strategy more closely in line with that of Verizon (VZ), which has mostly focused on 5G. For those focused on the dividend, lower debt and a more-focused 5G strategy should boost the strength of the payout and increase the overall appeal of T stock.
As of this writing, Will Healy is long ABBV stock.