How does the drop in rates increase the attractiveness of these 3 dividend stocks?
At a time when interest rates are expected to fall, investor attention is increasingly focused on dividend-paying stocks. Indeed, falling rates have a direct impact on government bond yields and interest on savings accounts, driving investors towards alternatives that offer stable and high returns. Dividend stocks are one of these attractive options, and as bond yields decline, investors can move their funds back into dividend stocks.
Within the broad market, a good place to start your search for quality dividend stocks is with the S&P 500 Index. In the following article, we'll look at three companies in this index that currently offer the highest dividend yields. Still, it is important to consider not only the yield, but also the stability and long-term potential of each of these companies.
Walgreens Boots Alliance $WBA-3.0% (dividend yield: 11.1%)
Walgreens
WBAWalgreens Boots Alliance is appealing at first glance due to its high dividend yield, but this company's situation warns of the potential risk of a so-called dividend trap. The company's share price has fallen 66% since the beginning of the year, mainly due to pandemic-related revenue losses, reduced margins at pharmacies, and difficulties in the retail segment. However, the fundamental problems were brought on by the ill-fated acquisition of VillageMD, a network of primary care clinics, which caused the company significant losses.
Although Walgreens stock now looks very cheap, trading at a multiple of around 3, this is an adjusted earnings multiple that likely reflects investor concerns about further write-downs and declining profitability. The company has taken $13.6 billion in writedowns this year, and its free cash flow was negative - minus $1.5 billion.
Given these financial challenges, Walgreens may be forced to cut its dividend again and may soon be removed from the S&P 500 index as its market capitalization has fallen below $8 billion. Despite the high yield, this appears to be a stock that investors should avoid.
Altria $MO+0.3% (dividend yield: 8.08%)
Altria
MOAltria has been one of the best-performing titles in the market for decades, but a gradual decline in smoking and a lack of successful innovation has slowed it down in recent years. An investment in JUUL Labs, an electronic cigarette maker, has produced big losses, and Altria has also written down most of its investment in Canadian cannabis company Cronos Group.
More recently, Altria invested in NJOY to gain market share in vaporizers. Shares of tobacco companies have strengthened significantly in the spring months, and investors may be sensing some stabilization in the market. With a dividend yield of over 8% and a history of dividend increases (59 times in the last 55 years), Altria is a steady payer.
Despite this stable yield, questions remain about Altria's long-term growth potential. Declining cigarette consumption remains a major threat, but if you're looking for a high dividend yield, Altria may be a reasonable choice.
Ford Motor Company $F-0.4% (dividend yield: 5.6%)
Ford
FFord has long been one of the leaders in the auto industry, but like Altria, it's struggling. In recent years, it has struggled with declining demand in foreign markets and stagnation in electric vehicles (EVs), where growth expectations have not met investor expectations.
Second-quarter results showed that Ford expects a $5 billion loss in its EV division. Even though traditional internal combustion engines and commercial vehicles remain highly profitable, the company's stock has lost value.
For the full year, however, Ford expects operating profit between $10 billion and $12 billion and free cash flow between $7.5 billion and $8.5 billion, making the stock look cheap. At current valuations, they trade at a multiple of 4 based on operating profit and 5 based on free cash flow. Ford offers a dividend yield of 5.6%, which is currently a solid yield, and if the company can take advantage of hybrid vehicle growth, the stock could rise in the future.
Disclaimer: You will find a lot of inspiration on Bulios, but stock selection and portfolio construction is up to you, so always do a thorough analysis of your own.
Source: 247wallst.com.
That Ford's gotten interestingly skinny. Granted, it's pretty much this industry for me, full of high competition, but as one of the oldest car companies just because of that history and the memory of Hanry Ford, I hope they stick around and can keep innovating. The price is interesting and the dividend is too. 😊
$MO+0.3% is great. The stock has risen significantly in recent times and the dividend is high too. This company has a strong presence in my portfolio.