When the United States Federal Reserve ended its rate tightening and instead loosened it, it eased selling pressure on dividend-growth income stocks. Yet not all “DGI” stocks did well in the last few months. Energy stocks face falling oil prices, hurting stock prices but increasing yields. Drug stocks also face mounting risks from the inability to raise prices without government scrutiny.
But telecoms and various consumer discretionary stocks are performing well and offer a strong dividend yield.
Now the odds are high that the Fed will lower rates in September, and again after that, DGI investors have plenty of stocks to choose from. Here are seven high-yielding dividend stocks for investors to hold over the next decade.
High-Yielding Dividend Stocks to Buy: AT&T (T)
Dividend Yield: 5.9%
AT&T (NYSE:T) shares topped over $35 before closing at $34.82 recently. The company provided an update to shareholders at the Oppenheimer Conference Aug. 6. Chief Financial Officer John Stephens listed the company’s priorities which included its expectations for total wireless service growth for the full year. Postpaid smartphone growth will drive its future wireless growth. Customer upgrades to unlimited plans and growth in its Cricket wireless unit will also lift growth. AT&T expects reduced pressure from resellers and will lead in the 5G race.
The telecom giant expects sustained earnings before interest, tax, depreciation and amortization from the Entertainment Group. This already grew in the first two quarters of 2019. Beyond this year, broadband, a higher-quality customer base, improved cost management and advertising growth will drive profits. AT&T is also introducing AT&T TV, which will lower pricing pressures from its legacy services.
In video streaming, AT&T faced falling subscribers as churn increased in the second quarter. A focus on EBITDA stability will lead to further erosion in subscription counts. But long-term profitability will improve as the company retains its better quality customers. In effect, attracting and retaining subscribers who are in areas with internet speeds of 50 Megabits per second or higher will lift the average revenue per user. The company also plans to have fewer promotions while strategically offering retention promos.
AT&T stock trades at a forward price-to-earnings ratio of 9.6 and has a dividend yield of 5.9%. A five-year discounted cash flow EBITDA Exit model suggests the stock has plenty of upside ahead.
Dividend Yield: 4.3%
Verizon Communications (NYSE:VZ) is getting some attention for its sale of Tumblr to WordPress for under $3 million. Yahoo spent $1.1 billion for the unit in 2013. Verizon then bought Yahoo for $4.48 billion. But when Tumblr banned pornographic material on the site, users left en masse. Verizon can afford to overpay for assets but losing a billion dollars unnecessarily will obviously hurt its shareholders. VZ stock topped over $60 in March and May of this year and is in a steady downtrend.
In the $55 range, Verizon stock has a dividend of 4.3%. Second-quarter earnings per share is down from $1.00 last year to 95 cents. If investors include special-item adjustments, then EPS rose from $1.20 last year to $1.23. Wireless service revenue is driving EBITDA. It benefited from a growth in net additions and strong customer loyalty.
As it embraces the 5G network build out, Verizon stands to grow average revenue per user as more customers sign up for the faster service. This should guarantee free cash flow growth over the next decade.
In the second quarter, revenue fell slightly by 0.4% to $32.2 billion but adjusted EBITDA Margin grew to 37.7%, up from 36.8% last year. Revenue from Verizon Media Group fell 2.9% but only made up $1.8 billion in revenue. Still, the launch of HuffPost Plus and Yahoo Finance Premium may reverse the unit’s underperformance.
For the first half of the year, net secured debt to adjusted EBITDA fell to 2.1 times, down from 2.3 times in the first half of 2019.
The trend for higher dividend payments, disciplined capital expenditures and falling total debt are all reasons to hold VZ stock for the next decade.
Royal Dutch Shell (RDS.A, RDS.B)
Dividend Yield: 6.8%
Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B) shares broke down from six months in the $62-$66 range and closed at $55.13 recently. Falling oil prices due to excess supply and the U.S.-China trade war sent the stock to 52-week lows. RDS.A shares now have a dividend yielding 6.8%.
In its second quarter, Royal Dutch Shell reported lower-than-recent levels of profitability and mixed performance throughout its business. The macro-environment, led by lower realized oil, gas and liquefied natural gas prices, hurt results. The downstream segment faced weaker industry conditions. But macro conditions are cyclical in nature. At every downturn, a subsequent recovery in oil and gas followed. Also, refining and chemical margins rebounded, too. The same pattern will emerge.
RDS faced asset underperformance and operational issues. Planned maintenance events also hurt Q2 results. For example, even though year-over-year production rose, some of its wells underperformed in the Gulf of Mexico. These operational events are one offs and RDS expects to meet its targets. That is, it expects to meet its 2020 organic free cash flow outlook.
In the second quarter, cash flow from operations was $10.5 billion. Due to this strong performance, management announced the next $2.75 billion for its share buyback program. This continued strong performance suggests a sustainable dividend and an eventual rebound. Investors should consider RDS stock as a buy and hold it for the next decade.
Exxon Mobil (XOM)
Dividend Yield: 5.2%
Exxon Mobil (NYSE:XOM) peaked for the year in April at around $83 as oil prices rebounded. But since then, the stock got caught in a selling pattern. XOM stock has a dividend that yields 5.2% and a trailing price-to-earnings ratio of 16.4. Exxon Mobil stock currently hovers 4.4% above 52-week lows.
On Aug. 16, the U.S. Energy Information Administration’s weekly status report showed a 497,000 barrels per day weekly decline in oil imports. The four-week average crude oil imports of 7.2 million barrels per day is 10.8% below last year’s average. This report lifted XOM stock back to $70 but last week, heightening trade tensions sent the stock back to a recent price near $67.50.
In its second-quarter report, Exxon said short-term market imbalances are putting pressure on natural gas prices and industry product margins. The nearly $1 billion negative free cash flow is due mostly to Exxon ramping up capital expenditures to $8.1 billion. Its first half of 2019 capital expenditure is at 50% of full-year guidance.
Its upstream improved with liquids realizations up. Permian production increased by 21% to 274 kilobarrels of oil equivalent per day. Overall, year-over-year volumes increased by 7%. Liquids increased 8% year-over-year to 177 kilobarrels per day as production is at levels not seen since 2016.
Exxon continues to report consistent margin levels, with cumulative free cash flow increasing. Dividends are well-covered and should reward investors holding the stock for the next decade.
Dividend Yield: 6.8%
In the automotive sector, Ford (NYSE:F) is set to trade in a steady downtrend. China said Aug. 23 that it would tax U.S. automobile imports. On the charts, F stock showed a “double top” at $10.50 between May and July. The stock closed recently at $8.77 and has a dividend yield of 6.8%.
Ford has three markets to target with its vehicles: work, adventure and performance. And in recognizing the shifting U.S. consumer demand is moving away from cars and towards truck and utility, Ford is changing up its product mix. Explorer and Escape models will find success in the utility market through a sleek design. On the other end of the spectrum, Ford has a new, yet-to-be-named small utility for the off-road and rugged market.
Ford is transforming its portfolio, discontinuing the Fusion, Taurus, Focus and C-Max. The plant changeover will accommodate the return of the Bronco. The Ranger, all-new Explorer, the Aviator and a new SUV will replace the car lineup. By 2020, Ford plans to launch the Bronco, F-150, a Mustang-inspired battery electric vehicle SUV and an off-road utility vehicle. And by dropping legacy sedan nameplates, the company will have shorter product cycles that allow it to respond to the constantly changing consumer tastes.
Ford trades at a forward price-to-earnings ratio of 6.4. A 5-year discounted cash flow EBITDA exit model that assumes revenue growing annually at around 3% implies the stock has a fair value at above $10.00.
General Motors (GM)
Dividend Yield: 4.2%
General Motors (NYSE:GM) shares enjoyed a solid uptrend that began after the stock bottomed at below $34 at the end of May. After peaking at around $41, the stock plunged to just above $36 recently. The culprit? You guessed it. Trade tensions worsening between the U.S. and China. At a forward price-to-earnings of 5.6, General Motors offers a dividend that yields 4.2%. But like Ford, GM is preparing for a possible economic downturn. GM has $17.14 a share in cash and with a book value per share of $30.58, the market values the business at around $6 a share.
A sustained trade war seems unlikely. A change in the U.S. government would put an end to escalating tariffs. GM cannot afford to ignore the fast-growing Chinese market. So, over the next decade, chances are low that the stock will trade at this deep discount throughout that time.
In its last quarter, GM reported an EPS of $1.64 as revenue fell 1.9% to $36.06 billion. The company benefited from strong demand for full-size trucks, crossovers and SUVs. GM’s business transformation drove the company’s profitability. Its large SUV segment performed well as deliveries grew 16% year-over-year. GM also used fewer incentives compared to its competitors. Strong performance from its crossover segments contributed to profitability. For the rest of the year, new crossovers and heavy-duty truck availability will sustain its growth.
Various financial models here suggest that GM stock trades at a discount.
Dividend Yield: 7.2%
In the last quarter, Altria’s (NYSE:MO) stock fell by 11.4% and closed recently near $46. The company hiked its dividend, which now yields 7.2%. In the next decade, consumer habits may change as cigarette smoking declines. Yet the decline could be in the low single digits each year. Altria will still generate cash flow and profits from this segment.
Now, Juul’s vaping product is the more exciting segment. Juul is the leading e-vapor brand and is Altria’s strategic investment. Within the non-combustible tobacco segment, Altria has Copenhagen, IQOS, and on! which is an oral nicotine pouch. On! Is also a strategic investment that diversifies the company away from its reliance on combustible tobacco products like Marlboro and Black & Mild.
In the second quarter, Altria reported adjusted other comprehensive income growth in its smokeable products segment (up 11% year-over-year). Its adjusted OCI for smokeless products grew 10.8% year-over-year to $422 million.
Though the ban of Juul in San Francisco in July is an unfortunate development even though it is less damaging than cigarettes, the unit will eventually win U.S. Food and Drug Administration approval. When that happens, the downturn in Altria stock will end. And as revenue from Juul and over vaping products grow, investors will get rewarded in the short term. Those holding shares for the next decade may collect a solid high-paying dividend.
Every financial model implies Altria stock has an upside in the double digits.
As of this writing, Chris Lau was long Ford.