In today's market environment, where the S&P 500 index yields less than 2% on average, income investors are searching for alternative options to generate reliable returns. While interest rates are on the rise, there are still opportunities to invest in high-yield stocks with attractive dividends. In this article, we will explore three ultra-high dividend stocks that not only offer yields above 8% but also maintain sustainable payouts. These companies include Altria Group (MO), Telephone & Data Systems (TDS), and Lincoln National (LNC). Let's delve into each company's profile, recent performance, and the outlook for dividend sustainability.
Altria Group
Altria Group is a prominent consumer staples giant with a long-standing track record of success. As the seller of renowned brands such as Marlboro, Skoal, and Copenhagen, Altria enjoys a strong market presence in the United States. The company has consistently increased its dividend for over 50 years, earning its place on the exclusive Dividend Kings list.
In its recent fourth-quarter report, Altria surpassed earnings expectations with a non-GAAP EPS of $1.18. Although revenue dipped slightly, the company's management remains focused on balancing growth, shareholder returns, and strategic investments. Altria expects to achieve a 3% to 6% growth rate in 2023, targeting a dividend payout ratio of 80% of its annual adjusted EPS. Trading at an undervalued P/E ratio of 9.4 and offering a compelling yield of 8%, Altria stands out as an attractive investment option.
Telephone & Data Systems
Telephone & Data Systems operates in the telecommunications industry, providing a range of services including cellular, landline, wireless products, cable, broadband, and voice services across the United States. While the company faced investor disappointment with its recent financial results, TDS has a remarkable dividend track record, having increased its dividend for 49 consecutive years.
During the first quarter of 2023, TDS experienced a slight decline in total operating revenues compared to the same period last year. However, the company's postpaid average revenue per user (ARPU) saw a promising 1.9% year-over-year increase, and its broadband connections and residential revenue per connection demonstrated growth. With reaffirmed guidance for 2023 and a strong commitment to shareholder value through share repurchases, TDS continues to focus on sustainable dividend payments.
Lincoln National
Lincoln National is a well-established provider of life insurance, annuities, retirement plan services, and group protection. With a rich history dating back to 1905, Lincoln National has grown into a significant player in the market. The company faced some challenges in 2022, reporting a decline in net income compared to the previous year. However, these results included specific unfavorable items due to the annual review of assumptions.
Looking ahead, Lincoln National aims to normalize its adjusted earnings in 2023. The company has demonstrated its commitment to shareholders by reducing its share count through substantial repurchases. With an estimated potential for 3% annual growth in net income and a solid three-pronged product strategy, Lincoln National appears poised for future success and sustainable dividend growth.
Conclusion
In a low-yield environment, income investors seeking superior returns can turn to high-yield stocks with sustainable dividends. Altria Group, Telephone & Data Systems, and Lincoln National offer attractive dividend yields above 8% and have a history of consistent payouts. While each company faces unique challenges, their strong market positions, strategic initiatives, and commitment to shareholder value make them compelling investment opportunities. As always, investors should conduct their own due diligence before making any investment decisions.
Additional Information
In addition to the information provided in the article, here are a few additional things to consider when evaluating high-yield stocks:
- The company's financial strength: It is important to assess a company's financial strength before investing in its dividend-paying stock. This includes looking at factors such as debt levels, cash flow, and earnings.
- The company's dividend history: A company's dividend history is a good indicator of its commitment to paying dividends. Look for companies that have a long history of increasing their dividends.
- The company's industry: The industry that a company operates in can also affect its dividend sustainability. For example, companies in cyclical industries, such as energy and materials, may be more likely to cut their dividends during economic downturns.
- The company's valuation: It is important to consider a company's valuation when investing in its dividend-paying stock.
Some additional tips for analyzing high-yield stocks with sustainable dividends:
- Do your research: Before you invest in any stock, it is important to do your research and understand the company's business model, financial health, and competitive landscape.
- Diversify your portfolio: It is important to diversify your portfolio by investing in a variety of stocks, including high-yield stocks with sustainable dividends. This will help to reduce your risk and protect your investment from losses.
- Rebalance your portfolio regularly: As your financial situation changes, you may need to rebalance your portfolio to ensure that it still meets your investment goals. This may involve selling some of your high-yield stocks with sustainable dividends and buying other stocks.
some additional metrics to consider when evaluating ultra-high dividend stocks:
- Dividend payout ratio: This is the percentage of a company's earnings that are paid out as dividends. A high dividend payout ratio can be a sign that a company is not reinvesting enough of its earnings back into the business, which could lead to slower growth in the future.
- Free cash flow: This is the amount of cash that a company has available after paying its operating expenses and capital expenditures. A high level of free cash flow is important for a company to be able to sustain its dividend payments in the long term.
- Debt-to-equity ratio: This is a measure of a company's financial leverage. A high debt-to-equity ratio can be a sign that a company is taking on too much risk, which could lead to financial problems in the future.
It is important to remember that no investment is guaranteed, and ultra-high dividend stocks are no exception. However, by carefully evaluating the metrics above, investors can increase their chances of finding ultra-high dividend stocks that are likely to be sustainable in the long term.
Here are some additional tips for finding ultra-high dividend stocks:
- Look for companies with a long history of dividend growth.
- Choose companies that have strong financial fundamentals, such as high profitability and free cash flow.
- Avoid companies with high debt-to-equity ratios.
- Do your own research and talk to a financial advisor before investing in any stock.
By following these tips, investors can increase their chances of finding ultra-high dividend stocks that are likely to be a good investment for their portfolio.
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