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It can be a lot of fun to find high-growth businesses that can generate returns that outperform the market. However, growth stocks often have high volatility, which can sometimes be worrying.
Investing in stable, slow-growing businesses can be a smarter option. You could potentially add up to $10,000 in dividend income to your portfolio this year by splitting your $125,000 total investment among the four high-dividend-yielding companies described below.
Let’s check out the pros and cons of each company and assess why 2024 is a great opportunity to open a position.
1. Rhythm Capital: Dividend yield 9.7%
The first company on the list is a real estate investment trust (REIT) rhythm capitaI (RITM -0.87%). REITs generally have higher dividend yields because they are required by law to pay out at least 90% of their annual taxable income to shareholders. At a yield of 9.7%, a quarter of the proposed $125,000 investment could yield about $3,000 in dividend income.
One of the central themes of the current macroeconomic situation is high interest rates. In light of this situation, traditional banks are tightening their lending standards. This approach opened doors for his Rithm and provided the company with overlooked opportunities in commercial real estate, mortgages, and even rentals.
RITM Price vs. Book Value Data by YCharts
As of this writing, Rism stock’s price-to-book ratio (P/B) is 0.84x, well below its average over the past 10 years. Additionally, two of the company’s competitors are starwood property trust and Analy Capital Managementeach trading at a P/B multiple of just over 1.
My hunch is that the market is ignoring the rhythm, given that the company is exposed to interest rate policy set by the Federal Reserve. I understand these concerns, but I think they are short-sighted. A long-term investor in Rism stocks has enjoyed a total return of more than 140% over the past 10 years. Given the company’s diversification of services and the unique opportunity to take advantage of market disparities given current bank credit underwriting policies, we believe Rithm is poised to continue its strong performance.
Image source: Getty Images.
2. Altria: Dividend yield 9.5%
The second company I’m considering is Big Tobacco. Artoria (M.O. 0.29%). In fact, demand for tobacco products has been on the decline for many years as consumers become more health conscious. Furthermore, the current macroeconomic situation, characterized by high borrowing costs and inflation, has led to a decline in consumer spending in certain regions. Altria is not immune to these trends, and its financial position reflects that.
Nevertheless, as good companies often do, Altria has found a way to counter the declining popularity of traditional tobacco products. More specifically, the company is expanding into the smokeless tobacco and e-cigarette markets as it seeks to diversify its product offering. Time will tell whether these investments pay off, but current investors may be looking to take advantage of the company’s declining share price.
Altria stock currently trades at a forward price-to-earnings ratio of 8.3 times, well below estimates. S&P500It’s 21.7. It’s true that investors are tired of Altria and don’t seem to have high expectations for the company. But perhaps what makes Altria the most unique company on this list is its esteemed status as a Dividend King, a company that has raised its dividend for more than 50 consecutive years. Probably.
Long-term investors should zoom out and consider the big picture here. While tobacco products have declined in popularity, Altria has struggled throughout its long history and has always found a way to reward its loyal shareholders.
Given the 9.5% yield, a quarter of the proposed $125,000 investment could generate more than $2,900 in dividend income for your portfolio. Investors may want to seriously consider Altria’s position at its current valuation while earning passive income from a company that consistently raises its dividend.
3. Verizon Communications: Dividend yield 6.8%
3rd place goes to telecommunications carriers verizon communications (VZ 0.54%). To be honest, the telecommunications sector is not a very attractive field. The products and services provided by these companies are generally commoditized, forcing large companies to compete on price. Additionally, as streaming services gain traction, companies like Verizon are constantly battling subscriber churn. It’s no surprise that Verizon stock has fallen about 3% over the past year.
However, despite the competitive environment, Verizon still manages to generate strong free cash flow. As a result, the company has the financial flexibility to continually reward shareholders. In fact, in September, the company raised its dividend for the 17th consecutive year. I think investors looking for more favorable growth prospects are discounting these moves.
So while Verizon stock won’t easily outperform the broader market, dividend investors may still like this stock. At a yield of 6.8%, a quarter of the proposed $125,000 investment could provide more than $2,100 in dividend income.
4. AT&T: Dividend yield 6.4%
The last company on the list is a Verizon competitor AT&T (T -0.46%). What makes AT&T even more attractive is the fact that, unlike Verizon, it’s actually growing its revenue.
Additionally, AT&T was able to clean up its balance sheet and pay down debt by generating strong cash flow. You might think that by improving its liquidity profile, the company is getting some cheers from Wall Street. But that’s not the case.
Fast forward to 2022, AT&T has cut its dividend by about half. Investors were understandably dissatisfied and likely began to doubt AT&T’s ability to effectively manage its business. As of this writing, AT&T stock is trading near its lowest level in 30 years.
While it’s understandable for investors to question management’s ability to operate after such drastic action as cutting the dividend, I view the stock’s current price action as a buying opportunity. Given the company’s improving net debt profile, we think the dividend is relatively safe. At a yield of 6.4%, he is offered $2,000 in dividend income from the last quarter of his $125,000 investment, making his total passive income $10,000.
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