In January 2020, the effective federal funds interest rate, which is what banks charge each other to borrow money overnight, was 1.55%. After an emergency rate cut in March, the federal funds rate now stands at around 0.1%, and the Federal Reserve recently said it does not expect another rate hike through at least 2023. Investors looking for high-quality yield in 2021 have few viable options. The best high dividend yield stocks, however, could provide opportunity for investors to profit off a 2021 economic rebound and generate impressive income along the way. Here are nine of the best high-yield stocks to buy in 2021.
Enterprise Products Partners
Enterprise Products Partners (EPD) is the largest publicly traded master limited partnership, or MLP. The company provides midstream energy services, including gathering, processing and storing natural gas. Bank of America analyst Ujjwal Pradhan says Enterprise's approximately 30% drop in 2020 is a reflection of investors' lack of appreciation for high-quality yield within the midstream energy space. In light of the stock's underperformance, management said it is shifting its priority from increasing its payout to ramping up share buybacks in 2021. Enterprise Products pays an 8.9% yield. Bank of America has a "buy" rating and $24 price target for EPD stock.
Enbridge (ENB) is another top North American energy infrastructure company specializing in crude oil, natural gas and natural gas liquids transport. Enbridge shares are down about 20% in 2020, but Morningstar analyst Joe Gemino says Enbridge's Line 3 replacement pipeline could drive significant upside by the end of 2021. Enbridge received permits for the pipeline and began construction on Nov. 30. Gemino estimates there's an 80% chance the project will be completed despite several pipeline-related lawsuits. Enbridge shares pay an 8.1% dividend. Morningstar has a "buy" rating and $43 fair value estimate for ENB stock.
Kinder Morgan (KMI) also operates in the midstream energy business and would benefit tremendously from a 2021 energy sector rebound. Kinder Morgan shares have taken an even bigger hit than shares of Enbridge and Enterprise Products in 2020, dropping about 35% year to date. CFRA analyst Stewart Glickman says the company's pivot to a more conservative strategy has provided a margin of safety in a difficult 2020 environment. Glickman says the stock has an attractive valuation, and the 2020 pullback is a long-term buying opportunity. Kinder Morgan has a 7.6% dividend. CFRA has a "buy" rating and $16 price target for KMI stock.
AT&T (T) shares are down about 26% in 2020, but Bank of America analyst David Barden says the stock is the "most unloved megacap" in the S&P 500. Barden says AT&T's subscription-based business model is fundamentally sound. The stock is also a tremendous value, priced at just 8.9 times projected 2021 earnings. Barden says negative catalysts such as T-Mobile (TMUS) market share gains and legacy media disruption are already fully priced into the stock. AT&T pays an attractive 7.2% dividend. Bank of America has a "buy" rating and $36 price target for AT&T stock.
China Mobile (CHL) is the world's largest telecom company. Like AT&T, China Mobile isn't getting much love from investors in 2020, given the stock is down about 30% year to date. Morningstar analyst Dan Baker sees brighter days ahead in 2021 for China Mobile. Baker says China Mobile's scale helps the company achieve higher margins and higher returns on invested capital than its competitors achieve. Baker says the stock is attractively valued, trading at around 6.8 times projected 2021 earnings. China Mobile also pays a dividend yield of about 7%. Morningstar has a "buy" rating and $52 fair value estimate for CHL stock.
Vodafone (VOD) is the leading telecom company in countries such as Germany, Italy and Spain. Vodafone shares are down about 13% in 2020. CFRA analyst Adrian Ng says Vodafone's "Fit for Growth" cost savings initiative is making a significant impact on margins, and the company appears well positioned to generate $7.3 billion in free cash flow in the 2021 fiscal year. Vodafone is also in the process of divesting its tower assets, which could help improve its balance sheet and focus its core business. Vodafone shares have a 6.2% dividend. CFRA has a "buy" rating and $19 price target for VOD stock.
Total SE (TOT) is a global oil and gas company headquartered in France. The stock is down about 20% in 2020, but Bank of America analyst Christopher Kuplent says Total's lagging share price doesn't reflect its underlying fundamental business. Kuplent says Total's falling gearing ratio and 7.1% dividend is unmatched among its oil major peers. Total can organically fund its dividend at Brent crude oil prices as low as $40 per barrel, and the company's renewables subsidiary provides exposure to a highly desirable growth opportunity. Bank of America has a "buy" rating and $51.50 price target for TOT stock.
Philip Morris International
Philip Morris International (PM) is one of the world's largest tobacco companies and is the parent of brands such as Marlboro, Parliament and L&M. Tobacco sales are relatively recession-proof, and Philip Morris shares have only slumped a bit in 2020, falling about 3%. Morningstar analyst Philip Gorham says cigarette volumes will likely continue to be pressured in the long term, but Philip Morris' "Unsmoke" campaign is helping transition the company's business away from cigarettes and toward next-generation tobacco products, such as combustables, heated tobacco and vaping. Philip Morris pays a 5.8% dividend. Morningstar has a "buy" rating and $98 price target for PM stock.
Phillips 66 (PSX) is one of the largest independent oil refiners in the world. Phillips 66 shares were hit particularly hard in 2020, dropping about 35%. Fortunately for investors, Glickman says the sell-off is a long-term buying opportunity. The rollout of coronavirus vaccines should help trigger an inflection point in refined products demand, and Glickman projects Phillips 66's earnings per share will rebound from 2 cents in 2020 to $3.70 in 2021. In the meantime, investors get paid a 5.2% dividend for their patience. CFRA has a "buy" rating and $73 price target for PSX stock.
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