Downturn Gives These 3 Buys Juicy Dividend Yields
Simply going after the highest yields isn't a winning strategy. Companies that have the long-term growth prospects to support those dividend payouts are ideal.
If there's one silver lining about the bear market, it's that income investors have higher dividend yields at their disposal.
While it's hard to know if this week's stock rebound will endure, we do know that many stocks remain significantly discounted. And that those that pay generous dividends are dangling attractive yields that may limit further downside.
When income investors see dividend yields of 3%, 4%, or more, they typically don't last very long. Such stocks eventually get bid up to the point where the yields converge closer to the market average.
The current S&P 500 yield has climbed to approximately 1.7%. More than 50 of its components offer yields that are at least twice that.
Yet simply going after the highest yields isn't a winning strategy. Companies that have long-term growth prospects to support those dividend payouts are ideal.
What Energy Stock Pays a Big Dividend?
Enbridge Inc. (NYSE:ENB) is an energy infrastructure company that pays a $2.65 annual dividend. Following the stock's sharp decline from 2022 highs, this equates to a forward yield of 6.4%. By comparison, the average energy sector yield is around 4.2%.
With Enbridge, income investors are getting not just an above-average quarterly cash payout but also above-average fundamentals. The company's diverse network of oil and gas pipelines transport the majority of U.S.-bound Canadian oil exports and nearly one-fifth of U.S. natural gas. This generates stable cash flow and profits that are shared with investors.
Over the last 20 years, Enbridge shareholder distributions have grown at a 12% rate. That growth is likely to persist based on an evolving plan to increase capacity on its main shipping line. Meanwhile, there are more synergies to be gained from the Spectra Energy merger which should trickle down to strong bottom-line results.
What's particularly unique about Enbridge is that it has a growing regulated utility business that serves more than 3 million retail customers. This along with a bunch of wind energy assets off the coasts of Canada and Europe make it somewhat of a utility company in an energy company wrapper.
Management is projecting that EBITDA will increase by approximately 9% this year which bodes well for its 65% target payout ratio. The stock has been pulled lower amid rising rates and recession fears, but the dividend remains safe and sustainable.
What is a Good Defensive Telecom Stock?
BCE Inc. (NYSE: BCE) is the largest telecommunications company in Canada. It is also one of the country's largest dividend payers now, boasting a 6% yield with the stock back below $50. It is a yield that is more than twice that of the average communications stock.
As the name behind Bell Canada, BCE provides wireless, landline, and media services to residential and business customers nationwide. Approximately 70% of the country gets their local and long distance phone service through Bell Canada.
The stock has been an outperformer this year on account of its reliable cash flow generation and defensive nature. Regardless of where the North American economy goes in the second half of the year, demand for BCE's services will persist. That has management forecasting 2% to 7% earnings per share (EPS) growth for 2022. It is a wide range that reflects the uncertainty of the current economic climate but also a confidence in steady financial growth.
Despite an influx of competition in its core wireless market, BCE is performing well because of its superior scale, expense management, and focus on customer service. Given the dependable growth and a growing dividend to match it, it may be time to give BCE a call.
Is Gilead Stock a Buy and Hold?
Gilead Sciences, Inc. (NASDAQ:GILD) has failed to find its footing in the post-pandemic market. Shares of the biotech company are down 17% this year with risk-off mode not a friendly backdrop for the growth-oriented sector.
The recent concerns around Gilead include a diminishing contribution by remdesivir, the first Covid-19 treatment approved in the U.S., as the pandemic shifts to an endemic. But this doesn't mean it's the end of the road for growth opportunities.
With the core HIV/hepatitis business as its backbone, Gilead is also making inroads in an oncology market that is expected to be the long-term growth driver of the business. Therapeutic candidates for blood cancer, leukemia, and breast cancer have all posted positive results in clinical trials this year. A new partnership with Dragonfly Therapeutics to advance an immunotherapy program targeting solid tumors also holds promise.
As Gilead's oncology pipeline continues to progress, its leading HIV and hepatitis franchises will continue to generate solid profits. Management's confidence in this two-pronged growth strategy is apparent. It recently hiked its quarterly dividend to $0.73 marking the seventh consecutive year of dividend growth.
On an annualized basis, Gilead has a 4.8% dividend yield, the best among S&P 500 healthcare names. This should continue to create a floor for the stock until the market recognizes the growth potential of the various oncology programs.
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