Dividend stocks could soon get a better look from investors. That is since the Federal Reserve is anticipated to chop rates on Wednesday, starting a latest cycle of lower rates, which is able to bring down Treasury yields and rates of interest on savings accounts.
That process makes dividend stocks more attractive. Dividend stocks are prone to move higher as bond yields fall because bond investors will rotate back into dividend stocks in quest of yield.
In case you’re in search of dividend stocks, place to start out your search is the S&P 500. Let’s take a take a look at the three highest-yielding dividend stocks within the broad-market index today.
1. Walgreens Boots Alliance (dividend yield: 11.1%)
In case you’re a dividend investor, it is important to grasp the difference between a high-yield stock and a yield trap, and Walgreens Boots Alliance (NASDAQ: WBA) looks like a classic example of a yield trap.
Shares of the pharmacy chain are down a whopping 65% 12 months to this point, declining steadily because it’s struggled with a lack of COVID-related revenue, narrowing margins in its pharmacy business, an ongoing decline within the retail business, and challenges related to the misguided acquisition of VillageMD, a primary care clinic, which has led to significant losses within the business.
In keeping with conventional metrics, Walgreens now looks dirt low-cost, trading at a forward P/E of just above 3, but that is based on adjusted earnings. Nonetheless, that likely reflects investor fears over more write-downs and falling profits in the approaching quarter. In truth, the corporate has taken impairment charges of $13.6 billion this 12 months, mostly related to its acquisition of VillageMD.
It also had a negative free money flow of $1.5 billion this 12 months.
Walgreens could possibly be forced to chop its dividend again, and the corporate seems prone to be faraway from the S&P 500 soon as its market cap falls below $8 billion. The stock is best avoided.
2. Altria (dividend yield: 7.9%)
Altria Group (NYSE: MO) was one in all the top-performing stocks available in the market for roughly 50 years through 2017, but that is modified more recently as smoking rates proceed to say no and the corporate has struggled to evolve with latest tastes.
Its $12.8 billion investment in JUUL Labs imploded and it also lost most of its investment in cannabis grower Cronos Group.
More recently, the corporate acquired NJOY for exposure to the vape market.
Tobacco stocks surged through the spring as investors looked as if it would sense a turning point as next-gen products went mainstream. Plus, bond investors could also be preparing themselves for the rotation into dividend stocks.
Altria is a solid dividend payer with a yield of seven.9%, and the corporate has raised its dividend 59 times within the last 55 years.
I’m still skeptical of the corporate’s ability to grow long-term given the decline in cigarettes, but you possibly can actually do worse than Altria if you happen to’re in search of a high-yield dividend stock as its 7.9% yield is well-funded and reliable.
3. Ford Motor Company (dividend yield: 5.6%)
Like Altria, Ford Motor Company (NYSE: F) has been a frontrunner in its industry for generations, however the stock has struggled in recent times as the corporate has lost money in international markets, watched demand for electric vehicles (EVs) plateau, and seems stuck growing slowly in a mature industry.
Shares tumbled following its second-quarter earnings report as the corporate expects a $5 billion loss within the EV division, and profits fell within the second quarter, due partly to pressure within the EV division and slowing demand.
The excellent news is that Ford’s other divisions, its combustion vehicle division, and its business vehicles, remain highly profitable.
For the complete 12 months, Ford expects an adjusted operating profit of $10 billion to $12 billion and adjusted free money flow of $7.5 billion to $8.5 billion. That makes the stock look low-cost, trading at just 4 times its adjusted operating profit and 5 times its adjusted free money flow.
Ford now pays a dividend yield of 5.6%. If the corporate can profit from the expansion of hybrid vehicles, the stock could move higher from here. While Ford has underperformed the marketplace for years, it looks like an honest buy at the present price, especially if you happen to’re in search of a high-yield dividend stock.
Do you have to invest $1,000 in Ford Motor Company immediately?
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Idiot recommends Cronos Group. The Motley Idiot has a disclosure policy.
Should You Buy the three Highest-Paying Dividend Stocks within the S&P 500? was originally published by The Motley Idiot