3 S&P 500 Stocks Offering 5% Plus Dividend Yields
With interest rates still near historic lows, income-oriented investors continue to be challenged by where to find yield.
With interest rates still near historic lows, income-oriented investors continue to be challenged by where to find yield. One approach is to shift the bond-stock asset allocation more towards dividend-paying stocks.
This strategy certainly has its merits, but it too has been upended by the impact of the pandemic on many companies' dividend policies. From Disney and Ford to Boeing and Delta Air Lines, even the biggest of dividend payers have been forced to suspend or cancel their dividends.
Thankfully many companies have been able to continue rewarding shareholders with dividends even if in lesser amounts. Others have reinstated a paused dividend or even increased dividends.
This means that there are still plenty of stocks out there that come with juicy dividend yields. For the long-term investor in search of yield and capital appreciation, these three S&P 500 stocks offer the best of both worlds.
Is AT&T Stock a Risky Dividend Play?
With the exception of Altria Group and Lumen Technologies, there isn’t an S&P 500 stock that has a higher forward dividend yield than AT&T (NYSE:T). At 7.2% investors are tempted by an income level that is well beyond what the telecom giant historically pays.
The yield has increased significantly in recent weeks because A&T's stock price has declined since reaching $33.88 last month. All else equal, when a stock's price goes down, its dividend yield goes up. In other words, dividend yield is simply the annualized dividend amount per share divided by the share price.
Unfortunately, AT&T sold off last month due to expectations of a reduced dividend. After it spins off the WarnerMedia business and merges it with Discovery, AT&T revealed a plan to potentially cut its dividend nearly in half. So, the current yield may not last much longer if the company goes through with the post-spinoff plan.
However, with the WarnerMedia-Discovery deal not expected to close for another year, investors have some time to collect a nice yield. And once AT&T uses its $43 billion payout to pay down debt, it will have less cash to dole out to shareholders but be in a better financial position to grow and potentially raise the dividend over time.
Is the Williams Companies Dividend Stable?
The Williams Companies (NYSE:WMB) stock currently comes with a 6.3% yield making it one of the most generous income payers in the energy sector. Whether the current dividend payout is sustainable is another question.
When many oil & gas peers slashed or eliminated their dividend last year, Williams Companies paid a $0.40 per share quarterly dividend without pause. Once the calendar turned to 2021, the company bumped the quarterly payout by a penny, so shareholders are on pace to receive $1.64 per share in dividends this year.
There's good reason to believe Williams Companies can maintain if not raise its dividend going forward. It owns and operates one of the nation's largest networks of gas and liquid natural gas (NGL) pipelines that are backed by long-term customer contracts. And with demand for natural gas expected to rise as the U.S. moves away from coal, Williams' midstream activity should remain healthy and lead to steady cash flow growth.
As has been the case on multiple occasions in the past year, the pullback to the 50-day moving average is a good entry opportunity for new investors—and a chance to add for existing shareholders. The increasing, high yield dividend doesn't hurt either.
Is PPL a Good Dividend Stock?
PPL provides regulated electricity service to residential and commercial customers in its home state of Pennsylvania and Kentucky. The geographic footprint is indeed unusual but represents a reliable source of cash flow. Most of this cash is returned to shareholders. Based on forward earnings expectations, PPL will payout nearly 73% of earnings per share (EPS) as dividends over the next 12 months.
Since the start of the pandemic, the utility sector has been hampered by weak demand from industrial and commercial customers. Closed assembly lines and weak economic activity translated to lower usage of electricity. But with domestic manufacturing roaring back and overall business activity strong, PPL is now seeing solid demand growth from both the residential and commercial sides of the business.
What also makes PPL an attractive income play is the fact that it has increased its dividend for nine straight years. This has supported its ability to consistently have a dividend yield that is well above the industry average.
With PPL, don't expect anything beyond modest earnings growth as has historically been the case. But do expect a regular income stream that can be had at a reasonable valuation of 15x forward earnings. Now that's some electric income generation for a rising inflation environment.
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