As the U.S. Federal Reserve remains careful to not rock the boat with regards to reversing its aggressive monetary policy, it remains a low-interest rate environment. In turn, dividend stocks in general continue to remain at high prices, after being bid up by investors on the hunt for yield.
For instance, the ProShares S&P 500 Dividend Aristocrats ETF (BATS:NOBL), which holds a basket of high-quality dividend plays, sports a forward yield of 1.94%. Hardly much to get excited about. When it comes to individual names in the aristocrats category, like Johnson & Johnson (NYSE:JNJ) and Procter & Gamble (NYSE:PG), their yields (2.59% and 2.43%, respectively) aren’t that much higher.
Yes, a possible stock market correction could change this. After trading for historically high valuations, blue chip and speculative stocks alike could tumble down to more reasonable prices. But until then, choices remain limited, when it comes to finding stocks with yields that can at least keep up with the 5%+ inflation we are seeing today.
So, which of the small pool of high-yield dividend stocks are worth a look? These seven, all with forward yields well over 5%, and many of which will likely fare well in a market downturn, are definitely names to consider:
- Gaming and Leisure Properties (NASDAQ:GLPI)
- Iron Mountain (NYSE:IRM)
- Lumen Technologies (NYSE:LUMN)
- Altria Group (NYSE:MO)
- PPL Corporation (NYSE:PPL)
- AT&T (NYSE:T)
- Exxon Mobil (NYSE:XOM)
Dividend Stocks for Income Lovers: Gaming and Leisure Properties (GLPI)
Casino stocks have experienced a stunning recovery from their Covid-19 lows. That’s the case too with casino real estate investment trusts (REITs) like GLPI stock.
Yet even after more than doubling in price from the sub-$20 per share prices it hit on the onset of the virus, Gaming and Leisure Properties remains a dividend stock with a high yield. At today’s prices ($48.15 as of writing), this landlord of casino properties operated by Penn National (NASDAQ:PENN) and others sports an annual payout of 5.7%.
Owning shares in a REIT that leases space to casinos may seem risky at first glance. But the strengths highlighted in its May 2021 investor presentation show it’s hardly a gamble. These strengths include a diversified portfolio, long-term leases with credit-worthy tenants and recent accretive transactions. UBS’s Robin Farley noted these strengths as well, in her upgrade of the stock last month. The analyst raised her rating to buy, giving the stock a $54 per share price target.
Given its exposure to a sector that’s been running hot as of late, a potential downturn in the near-term may mean it pulls back. Even so, with its merits as a long-term holding for income investors, buying now, or when it dips again, may be a move worth making.
Iron Mountain (IRM)
Like GLPI stock, Iron Mountain is a REIT dealing in specialty assets such as records storage facilities and data centers. As has been the case with other dividend stocks, investors have bid it up aggressively. Shares have gained around 52.5% year-to-date.
Even so, after its move from under $30 per share, to around $45 per share, IRM stock remains a high-yielder (5.52% forward yield). But a high yield alone may not be the only reason why you may want to buy it. As I discussed back in June, with its strong underlying business and a deep economic moat, it may be at little risk of having to cut its dividend.
Some may not like the fact it hasn’t seen much dividend growth in recent years. It hasn’t raised its payout since before the pandemic. Even then, the increase in its quarterly payout was only from 61 cents per share, to 62 cents per share. However, as I also mentioned in my past coverage, and as commentators on Seeking Alpha continue to point out, its move into data centers could help it increase its cash flow, and in turn grow its dividend.
Nonetheless, with a steady underlying business, plus its data center catalyst, consider Iron Mountain shares one of the best high-yield plays out there.
Dividend Stocks for Income Lovers: Lumen Technologies (LUMN)
Admittedly, there’s a good reason why LUMN stock sports a very high yield (7.94%). The telecom company, burdened with a lot of debt, slashed its quarterly payout from 54 cents per share to 25 cents per share back in 2019. It may do so again, as a Motley Fool commentator discussed last month.
Why? Its pending deal to divest some of its legacy landline telecom assets in a $7.5 billion transaction with private equity firm Apollo Global Management (NYSE:APO) may reduce its ability to carry on with its high payout. However, investors interested in dividend stocks with big upside potential may still want to take a look at this opportunity. All in all, this upcoming asset sale is a good thing, not a bad thing, for Lumen’s future.
Selling some of its cash-generating but declining operations accomplishes two things. First, it provides much-needed cash to further pare down its debt position. Second, this move could lead to a market re-assessment of its valuation. That is, as it becomes a purely fiber-optics-solutions play, and gets out of “dinosaur” businesses like landline phone and DSL internet, instead of valuing the stock at a forward price-to-earnings (P/E) ratio of around 10x, shares could rise on multiple expansion, with its forward P/E moving up to 15x or perhaps even toward 20x.
Lumen remains a high-yield stock, but perhaps one now under threat of a dividend cut. However, with the potential for this $13 per share stock to see a big increase in value if its turnaround pays off? You may still want to buy it now.
Altria Group (MO)
Shares in Altria Group, parent company of cigarette giant Philip Morris USA, have seen a solid boost (19%) so far this year. Environmental, social and governance (ESG) investors may continue to avoid it.
But dividend investors willing to give it a pass for the controversial nature of its business? They have seized the opportunity, buying into a forward yield of 7.5%, leaps-and-bounds above comparable recession-resistant stocks with less baggage.
If you have no issues owning this “sin stock,” you may want to hop in as well. Of course, it isn’t only ethical concerns that are keeping the market from giving this cheap stock (forward P/E of 10.2x) a higher valuation. There’s also the worry that continued decline of smoking will minimize its ability to continue its current rate of payout. However, with the company proactively pivoting its business to non-combustible nicotine products, fears that its cash flow will see a big drop over time may be overblown.
Also, if the uncertainties hanging over the market lead to a correction/sell-off in the coming months, MO stock could be a name that holds steady. With its recent dividend increase further hammering the point home that its cash-cow cigarette business isn’t going anywhere for now, consider it a buy at today’s prices.
Dividend Stocks for Income Lovers: PPL Corporation (PPL)
Dividend cut fears have run high this year for PPL stock. I even pointed that out in a past article on dividend stocks there’s a risk of this utility company having to reduce its rate of payout. But just like the situation with Lumen, reducing its rate of payout wouldn’t be a “game over” moment.
How so? The concern of it having to slash its 5.83% forward dividend stems from its recent wheeling-and-dealing. That is, the sale of its U.K. unit, and its pending acquisition of Narragansett Electric. As SimplySafeDividends.com wrote back in March, its annual payout could fall from $1.66 per share to around $1.04 per share once the Narragansett deal closes. That gives this stock (at $28.63 per share today) an implied yield of around 3.6%.
So, why buy this stock when its days as a 5%+ yielder are clearly numbered? For starters, the deal won’t close until early next year, but investors have already priced-in the cut. This horse trading also took a key risk (the specter of regulations affecting its U.K. segment) off the table. The sale of its U.K. unit also will help it reduce debt.
Wells Fargo analyst Neil Kalton believes pessimism surrounding PPL has pushed it down too low. In turn, he has upgraded shares to buy with a $34 per share price target. It may not remain a very high-yielder for long. Yet considering that after a cut, its yield will be in line with other utilities, plus there’s the possible upside for beaten down shares. This may still be a buy for both income and capital growth.
AT&T has long been one of the more popular high-yield dividend stocks. But since announcing its plans in May to implement a dividend cut, once its deal to merge its WarnerMedia unit with Discovery Communications (NASDAQ:DISCA, NASDAQ:DISCB) closes, popularity among income investors has taken a hit.
Since May, it’s fallen from around $32 per share, to $27.20 per share. However, those turned off by its move earlier this year may want to give it a second look.
First, as my fellow InvestorPlace contributor Bret Kenwell recently pointed out, post-cut, T stock will still offer up a solid yield (4.5%).
Second, this transaction will likely unlock value. The combined price of AT&T and its spinoff (to be named Warner Bros. Discovery) could end up being worth more than its current price.
Third, getting out of the media business allows the company to focus its efforts on improving its core telecom business. Success with this may help put more points into shares as well.
Trading at a dirt-cheap forward P/E of 8.4x, there’s a lot more ahead that could help T stock reverse it’s declines, rather than send it lower. Still set to offer up a worthwhile dividend (even after the cut), with upside potential to boot, this may be a great “buy the dip” opportunity.
Dividend Stocks for Income Lovers: ExxonMobil (XOM)
Earlier this month, I made the case XOM stock is again a safe and steady dividend play. With the post-Covid recovery in swing, oil prices have surged back to their highs. There’s negligible risk that the energy giant could slash their dividend.
Since late 2020, investors have taken note. After a 60% run-up over the past twelve months, ExxonMobil’s forward yield has come down. That’s not saying much though, still clocking in at 6.48%. It’s one of the highest dividends out there among large-cap stocks. Nevertheless, some may still worry that tough times lie ahead.
Specifically, due to the success ESG activist Engine No. 1 (BATS:VOTE) had in a proxy fight earlier this year, that resulted in the fund winning three ExxonMobil board seats. With this, there’s been some concern the integrated oil company will follow the lead of European counterparts like BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS-A, NYSE:RDS-B), setting a timeline for an eventual move out of fossil fuels. On their other hand, fears the company will not adapt to a post-carbon world are also clear and apparent.
My take? Both concerns are overblown. Engine No. 1’s proxy victory has so far resulted in little actual change at the company. Renewables aren’t replacing fossil fuels anytime soon either. With some analysts calling for oil to surge even higher this fall, now may be time to buy this high-yielding oil stock.
On the date of publication, Thomas Niel held long positions in LUMN and MO. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.