Time to Grab: 2 Beaten-down Stocks with Extremely High Dividend Yields That Are Historically Cheap and Worth Buying Right Now - Latest Global News

Time to Grab: 2 Beaten-down Stocks with Extremely High Dividend Yields That Are Historically Cheap and Worth Buying Right Now

One of the great things about investing your money on Wall Street is that there are countless ways to grow your wealth. No matter your risk tolerance or investment focus, there are thousands of individual companies and/or exchange traded funds (ETFs) that may meet your criteria.

But in this endless sea of ​​possible investment strategies, one tends to stand out from the crowd. I’m talking about buying high-quality dividend stocks and holding those positions over time.

Recently, Hartford Funds analysts, in collaboration with Ned Davis Research, updated their datasets from a comprehensive study of dividend stocks published last year (“The Power of Dividends: Past, Present, and Future”). This duo compared the performance and volatility of dividend stocks with those of non-payers over a half-century period (1973-2023).

A person counts a stack of hundred dollar bills in their hands.

Image source: Getty Images.

After the latest update, Hartford Funds found that non-paying public companies delivered an average annual return of 4.27% over the past half century and were 18% more volatile than the benchmark S&P 500. In comparison, dividend payers have achieved an average annual return of 9.17% over the past 50 years, at 6%. fewer more volatile than the S&P 500.

Companies that regularly pass on a percentage of their profits to investors tend to be consistently profitable and can often offer transparent long-term growth prospects. In short, these are companies that we expect to increase in value over time and make their patient shareholders richer.

But not all dividend stocks are created equal. Although some extremely high-yield stocks — “ultra-high-yield” in the sense that their returns are at least four times higher than the S&P 500 — are more trouble than they’re worth, picking high-yield stocks can be real gems be.

What follows are two beaten-down ultra-high dividend yield stocks — with an average yield of 7.57% — that are historically cheap and ripe for selection by opportunistic income seekers.

AT&T: 6.43% return

The first stock with a high dividend that is exceptionally cheap and invites you to buy immediately is the Telekom Titan AT&T (NYSE:T). Although AT&T’s dividend remains unchanged at $0.2775 per quarter, the yield is a safe and respectable 6.4%!

Yet despite this phenomenal payout, AT&T stock has fallen 42% since the end of 2019.

One of the reasons for this weakness is rising interest rates. The company ended the March quarter with $132.8 billion in total debt. It is quite common for legacy telecommunications companies to carry a significant amount of debt. Unfortunately, as the Fed aggressively raises interest rates to combat historically high inflation, future refinancing activities and/or deals could become significantly more costly for AT&T.

AT&T’s other concern has to do with a history of The Wall Street Journal published in July 2023. The WSJ The report claims that legacy telecommunications companies could face significant cleanup and environmental/health costs due to the use of lead-clad cables. With telecom companies’ balance sheets already so heavily leveraged, the last thing they need is a potential multibillion-dollar liability.

While these are noticeable headwinds that current and potential AT&T investors shouldn’t sweep under the rug, it’s important to recognize that neither is as worrisome as the company’s depressed stock price suggests.

Although AT&T’s total debt of $132.8 billion is staggering, the company’s financial situation has improved dramatically over the past two years. When AT&T divested WarnerMedia in April 2022 and the company subsequently merged with Discovery to create a new media unit, Warner Bros. Discovery, AT&T enjoyed more than $40 billion in concessions – for example, Warner Bros. Discovery assumed select debt previously held by AT&T. Over the past two years (ended March 31, 2024), the company’s net debt has fallen from $169 billion to $128.7 billion.

T Long-Term Total Debt Chart (Quarterly).T Long-Term Total Debt Chart (Quarterly).

T Long-Term Total Debt Chart (Quarterly).

As for them WSJ report has directly refuted AT&T claims that its lead-clad cables pose a health hazard. Additionally, liability claims are typically handled in the U.S. court system. If AT&T were ever faced with the cleanup or liability costs associated with these lead-clad cables, it would take years for the court to reach a verdict. Over that time, his record would likely improve.

Aside from a strengthened balance sheet, AT&T’s core businesses continue to benefit from the 5G revolution. Mobile service revenue is expected to grow 3% in 2024, with churn rates remaining near record lows.

Meanwhile, AT&T’s broadband segment had another strong start to the new year with a net addition of 252,000 AT&T Fiber subscribers. The company has added at least 1 million net broadband customers for six consecutive years.

Although AT&T’s operating model isn’t particularly flashy and the company’s heyday ended decades ago, the company is capable of generating mid-single-digit revenue and profit growth and predictable operating cash flow. At just 7.5 times consensus 2025 earnings per share (EPS), AT&T is an undeniable bargain.

A small pyramid of tobacco cigarettes lying on a thin layer of dried tobacco.A small pyramid of tobacco cigarettes lying on a thin layer of dried tobacco.

Image source: Getty Images.

Altria Group: 8.7% return

The second beaten-down ultra-high-yield dividend stock that is historically cheap and worth buying right now is the tobacco giant Altria Group (NYSE:MO). Altria has increased its payout 58-fold over the last 54 years, putting it among an elite company alongside a handful of other “dividend kings.”

The clear challenge for tobacco stocks is for consumers to be better informed about the potential long-term health risks of consuming tobacco products. In the United States, Altria’s domain, the proportion of adults who smoke cigarettes has fallen from around 42% in the mid-1960s to just 11.5% in 2021. A steadily shrinking patient base is a worrying situation for any company.

Additionally, Altria’s high-growth days have now faded into the background. With interest rates near historic lows for much of the decade through 2022, investors flocked to faster-growing companies. This meant that mature companies like Altria were slowly becoming the stock market equivalent of chopped liver. Unsurprisingly, shares have fallen 42% since their peak in 2017.

While sin stocks like Altria Group won’t be for everyone, it’s still a company that has catalysts that can still provide solid returns for patient investors.

One factor that continues to work in Altria’s favor is its pricing power. Because nicotine is an addictive chemical, the company often has no problem passing on price increases that can partially or fully offset a decline in cigarette shipments.

Additionally, it certainly doesn’t hurt that Altria is a market share giant in the United States. The company’s premium Marlboro brand had a 42% share of the U.S. cigarette market in the first quarter, while its other premium and discount brands gained an additional 4.4% of total market share. Controlling nearly half of the U.S. cigarette market share makes it even easier for Altria to raise prices to its customers.

But Altria’s game plan involves more than just price increases. Management’s goal is to introduce new sales channels that can restart the company’s growth engine.

For example, in June 2023, Altria acquired electric steam company NJOY Holdings for $2.75 billion. While Altria’s sizable investment in e-vape company Juul didn’t pay off, buying NJOY was a no-brainer thanks to a clear differentiating factor.

At the time the acquisition was completed, NJOY had received half a dozen Marketing Grants (MGOs) from the U.S. Food and Drug Administration (FDA). These MGOs are effectively FDA approval slips that allow vape products to remain on retail shelves. The vast majority of vaping products lack MGOs and could therefore be discontinued at any time.

Additionally, Altria is a long-time shareholder of a Canadian marijuana license producer Cronos Group. Recently, the US federal government announced that cannabis will soon be moved to a less stringent controlled substance classification. This could open the door for Canadian medical marijuana producers to enter the U.S. market.

MO Stock Buybacks (Quarterly) ChartMO Stock Buybacks (Quarterly) Chart

MO Stock Buybacks (Quarterly) Chart

Finally, Altria Group has an excellent return on capital program. The company’s board approved an accelerated share repurchase program worth $2.4 billion and plans to complete another $1 billion in repurchases later this year.

A forward price-to-earnings ratio of 8.5 coupled with a yield of 8.7% is extremely attractive for income seekers.

Should you invest $1,000 in AT&T now?

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Sean Williams has held positions at AT&T and Warner Bros. Discovery. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.

Time to Pounce: 2 beaten-down ultra-high dividend yield stocks that are historically cheap and worth buying right now was originally published by The Motley Fool

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