Investors around the world are feeling some pain. But periods of turmoil like this also generate significant opportunity to put capital to work. Valuations across most sectors have fallen, which increases the margin of safety for buyers of shares today. It also increases the likelihood of capital gains.
At the same time, dividend stocks now sport higher yields, as the yield of a stock and its price move inversely. In fact, the list of high-dividend stocks continues to grow as the market sells off, and it now includes some truly great dividend stocks, let’s look at three high-yield stocks for long-term income:
Smoking Hot: Altria Group
Altria (MO) is primarily a manufacturer and distributor of smokeable and other tobacco products in the U.S. The company owns the highly lucrative Marlboro brand, as well as Black & Mild cigars and pipe tobacco, moist smokeless tobacco brands such as Copenhagen and Skoal. In addition to those traditional tobacco products, Altria’s portfolio has On! oral nicotine pouches, and a large stake in Juul vaping products.
The company, which was founded in 1822, is trying to diversify away from tobacco products and aims to become a smoke-free company in the years to come. To facilitate this, it has taken large stakes in Juul, as well as Cronos Group. Altria produces about $21 billion in annual revenue, and trades with a market cap of $77 billion.
Altria has an exemplary history of dividend increases, which stands at 52 consecutive years. That makes Altria a Dividend King, having boosted its payout for at least 50 consecutive years. The defensive nature of tobacco products means that Altria naturally has recession resistance built into its dividend. That has helped the company with dividend safety and growth in the past, and we believe will continue to do so for the foreseeable future.
Altria’s average annual dividend increase in the past decade is quite strong at 7.8%. For a defensive company with a half-century of dividend increases, it is all the more impressive. While we don’t see that sort of pace as sustainable, given its already-high payout ratio, we do think Altria will continue to grow its dividend for many years to come.
We see modest earnings growth ahead, given the company is actively trying to shrink its tobacco portfolio over time. However, with the payout ratio at less than three-quarters of earnings, we see the likelihood of the company’s dividend increase streak continuing as very high.
Altria’s current yield is a staggering 8.8%, making it one of the highest-yielding stocks in the market today. Given this combination of dividend longevity and enormous yield, we like Altria for income-focused investors.
Sticky to the Upside: 3M Company
Our next stock is 3M (MMM) , which is a diversified technology and consumables company that operates globally. 3M has four operating segments: safety and industrial, transportation and electronics, health care, and consumer. Through these segments, the company offers thousands of different products, spanning from personal protective equipment to tape to wound care, and more.
Founded in 1902, 3M generates about $36 billion in annual revenue, and trades with a market cap of $73 billion. 3M also has a 64-year dividend increase streak, making it one of the best dividend stocks in the world on that measure. As a result, it too is a Dividend King.
Like Altria, 3M has a very impressive dividend increase pace in the past decade despite its immense longevity. 3M’s average increase in the past decade is 9.7%, although we don’t see that pace as sustainable. We currently forecast 2% annual dividend growth in the years to come as the payout ratio has moved higher than the historical range in the past few years; we believe 3M will rectify that by growing the payout more slowly than earnings. We see 5% earnings growth for 3M in the years ahead, so there should be ample capital to continue to raise the payout indefinitely. In addition, the payout ratio is expected to be just 54% for this year, affording 3M the ability to continue its significant share repurchases, in addition to raising the dividend.
3M’s yield is also quite good at 4.6%, and is well ahead of 3M’s normal historical range, indicating a relative bargain for income buyers today.
Get Inside Intel Corporation
Our final stock is Intel (INTC) , a company that designs, manufactures, and distributes computer products globally. Through its various segments, Intel offers CPUs and chipsets, accelerators, boards, graphics products, memory and storage, and more. Intel sells to original equipment manufacturers, and has a burgeoning cloud service business through its Mobileye segment.
Intel was founded in 1968, produces about $75 billion in annual revenue, and trades with a market cap of $149 billion. Intel is a relative newcomer to paying a dividend, but has raised its payout for the past eight years.
Over those eight years, the average annual increase has come to just over 6%, so dividend growth has been quite meaningful. Going forward, we see similar growth at 5%. That is where we assess earnings growth potential for Intel, and we believe management is happy with where the payout ratio is today. Thus, earnings growth and dividend growth should be similar.
Intel’s payout ratio is just 35% of earnings for this year, so the dividend is not only extremely safe, but has ample room to grow in the years to come.
Finally, Intel’s current yield is 4%, which is not only high on an absolute basis, but is very high by Intel’s own historical standards. Like Altria and 3M, we see the yield as indicating significant value in the stock today.
All three of these names offer cheap valuations and higher yields than we’ve seen historically, so for investors looking to build long-term income, we see all three as attractive today.
