With rates heading higher, investing has quickly turned into a search for high-yield stocks. Investors are asking themselves: where can I get the best yield?
The answer is pretty simple. Look for stocks with big dividend yields and big earnings yield. That combination should provide a nice cushion against rising interest rate pressures.
But don’t just run a stock screen and buy the top 10 yielding stocks in the market. For high-yield stocks, you also want to buy good stocks — stocks that are supported by companies with healthy growth prospects and strong financials.
In this sense, the hunt for yield is much more than just a hunt for raw yield. It’s a hunt for quality stocks with big dividend yields and big earnings yields.
Where can you find stocks like that? Read on. I’ve identified 3 best high-yield stocks which perfectly fit that description.
3 High-Yield Stocks to Buy as Rates Head Higher: Apple Inc. (AAPL)
I was bearish on tech giant Apple Inc. (NASDAQ:AAPL) for a while on the idea that over-hyped iPhone X “Super Cycle” expectations were a material risk to the stock.
Apple stock did end up getting whacked after those Super Cycle expectations unwound. It dropped from $180 to $150 in a matter of weeks.
That sell-off, though, was the time to buy.
With Super Cycle risks now in the rear-view mirror, it looks like clear sailing for Apple stock to head higher from here.
The company is still selling a ton of phones, and at higher price points than ever, so the iPhone business is doing just fine. Meanwhile, iPad sales are soaring. The high-margin Services business continues to gain scale. Apple Watch remains red hot. The company is making a big push into smart-home tech. Apple Music might soon become the king of the U.S. streaming music industry.
Aside from the fact that the iPhone X wasn’t as big of a hit as everyone thought it would be this is a growth story firing on all cylinders. And Apple stock already got hit with that bad news. Now, it’s in rebound mode.
Considering this is a dirt-cheap stock (15.3-times 2018 earnings) with a nice yield (1.4%) and a ton of cash that is expected to be deployed over the next several quarters ($163 billion in net cash), it looks like it’s all smooth sailing from here for Apple stock. The company will buy back shares. They will hike the dividend. There will also be some acquisitions in there.
That combination of buybacks, dividend hikes and acquisitions should send AAPL stock materially higher over the next several quarters.
3 High-Yield Stocks to Buy as Rates Head Higher: Dicks Sporting Goods Inc (DKS)
While Dicks Sporting Goods Inc (NYSE:DKS) is a name investors have shied away from for a long time, I think the tide might be turning on this misunderstood company.
For the longest time, investors threw DKS in the retail apocalypse pile. Amazon.com, Inc. (NASDAQ:AMZN) was supposed to grow with such scale and ferocity that DKS was going to go the way of Blockbuster.
But holiday 2017 served as a big turning point in that narrative. Almost every retailer — not just Amazon — reported strong numbers for the holiday quarter. Most importantly, retailers across the board reported strong digital-sales growth.
What does that mean? Retailers have adapted to the omnichannel retail landscape. They’ve avoided extinction. From this perspective, certain left-for-dead retailers may actually have huge upside potential over the next several quarters.
Dicks is one of those retailers for two big reasons.
Firstly, DKS stock is dirt cheap. The stock is trading at just over 10-times 2018 earnings estimates. The dividend yield is near a 5-year high of just over 2%. And the free cash flow yield is right around 5.5%.
Secondly, DKS is set to actually grow over the coming years thanks to peer sports-retailer bankruptcies. Sports Authority, Sports Chalet, Golfsmith and MC Sports are just a few of the sports retailers that have gone under in the past few years. DKS, the biggest player remaining in this space, should be able to grab a majority of that market share.
3 High-Yield Stocks to Buy as Rates Head Higher: AT&T Inc. (T)
It seems that everyone’s favorite big-yield stock is telecom giant AT&T Inc. (NYSE:T). And I agree with the crowd on this one. T stock is perhaps the best pure high-yield stock in the market.
First, AT&T stock has really low volatility and the company has a massive moat, meaning that injections of volatility will remain rare into the foreseeable future. One can argue that AT&T is staring at secular headwinds in the form of cord-cutting, but the company is also the provider of some of the most essential things in today’s society, including internet and cell service.
Second, AT&T has a really big dividend yield that is supported by huge cash flows. The dividend yield is right around 5.5%, and the trailing free cash flow yield is near 8%, meaning there is lots of cash flow to go towards hiking the dividend and buying back shares.
Tax cuts will only boost that level of cash flow in the foreseeable future.
Third, the present day AT&T growth narrative is promising. The company’s hedge against cord cutting, DirecTV NOW, continues to gain traction is among the biggest streaming television services in the U.S. The roll-out of 5G offers higher-quality wireless service providers, like AT&T, the opportunity to differentiate their offering and up their prices, which will flow through to higher margins.
Altogether, I think AT&T stock looks good here and now. All the things that make this stock an attractive dividend play are in-tact, while the growth narrative is gradually gaining traction.
As of this writing, Luke Lango was long AAPL, DKS, AMZN, and T.