When the U.S. central banks increased interest rates, investors needed to outperform the markets by buying high-yield dividend stocks.
Investors are growing increasingly wary of buying companies whose stock would rise on their growth prospects. The tighter credit conditions will cause a mild recession at the very least in 2023.
The tough economy suggests that income investors should increase their weighting on high-yield dividend stocks while paring back on growth stocks.
Growth stocks with unsustainably high price-to-earnings and pay no dividends had a good return in January. Cautious investors may sell those speculations after the rally. They will fare better by buying high-yield dividend stocks poised to soar.
Income investors have seven companies to consider. These firms posted fourth-quarter results that suggest their business will thrive for the rest of the year. Those paying a dividend that yields as high as almost 9% are sustainable. Demand for their product is rising.
Conversely, a company that pays a dividend that yields around 4% are somewhat low. Still, the drug company has a healthy pipeline of products in development. When they reach the market, investors get rewarded with a dividend, stock buyback, and the company’s stock trading higher.
|BTI||British American Tobacco||$38.10|
|SQM||Sociedad Quimica Y Minera||$83.06|
The drug manufacturer increased its dividend by over 270% since 2013. As a member of the S&P Dividend Aristocrats Index, shareholders may look forward to its research and development efforts.
AbbVie is funding its aesthetics business to fuel its growth. The R&D expenses will also drive productivity, increasing AbbVie’s profit margins.
In the immunology segment, Skyrizi and Rinvoq have strong prospects. Rinvoq treats dermatologic indicators, such as atopic dermatitis. Expect the drug’s treatment in IL-23 to lead to expanded indications. Markets are potentially underestimating this drug’s addressable market.
Skyrizi and Rinvoq will collectively generate $11.1 billion in revenue in 2023. Chief Executive Officer Rick Gonzalez said on the conference call that those drugs generated around $7.7 billion in sales in 2022. This will more than offset the loss of exclusivity in the Humira drug.
Skyrizi is gaining market share globally. It treats psoriatic disease in 24 countries. The total prescription for Skyrizi to treat psoriasis grew by over 28% last year.
British American Tobacco (BTI)
British American Tobacco (NYSE:BTI) posted revenue growing by 7.7% Y/Y. For this year, the global tobacco industry volume will fall by 2%. This will not prevent the firm from reducing its net debt to adjusted EBITDA.
BAT has a strong portfolio in the U.S. It grew its volume share, profit, and operating margin in the last three years. The macro conditions for new categories in nicotine are improving.
The company has new categories in e-cigarettes. As its market share and addressable market expand, BAT’s cash flow will rise. Shareholders should expect a bigger dividend payout in the years ahead.
Last year, BAT bought back $2 billion in stock. It accelerated its transformation plan to deleverage since rising interest rates increase the cost of holding debt. When management reviews the increasingly healthy business, it will likely renew its stock buyback plan.
Management is increasingly proactive in its commercial initiatives. It is adjusting prices and widening its price points to appeal to more customers.
BAT is a well-managed company that ranks among the best high-yield dividend stocks.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) slumped after posting lower production and increasing its capital expenditure targets. This increased its yield and gives investors a better entry point among the high-yield dividend stocks.
Devon Energy announced a fixed dividend increase of 11% in 2023 in its Q4 and full-year 2022 results press release. Looking ahead, it will spend $3.6 billion to $3.8 billion in capital expending. This happened because of a temporary addition of a fourth frac that grew in its Delaware Basin in the quarter.
In addition, it renewed older contracts at current rates. The company assumes similar renewals at higher rates throughout 2023.
Expects natural gas prices to fall in 2023. By producing less natural gas, Devon Energy has its shareholder’s welfare in mind.
DVN stock rarely falls. When it lost 16% of its value last week, it mirrors a drop not seen since late Sept. 2022 and June 2022. Each time, the stock would snap back, rewarding value investors.
Enbridge (NYSE:ENB) distributed $0.8875 a share in quarterly dividends for shareholders of record on Feb. 15, 2023. It reaffirmed its 2023 financial guidance. Income investors get a great high-yield dividend stock with growth ahead.
Enbridge anticipates such items as its mainline utilization and full-year contributions from the TETLP rate settlement to support its growth. Financing costs and distributions to non-controlling interests from the sale of its interest in regional oil sands assets will offset growth.
In the near term, Enbridge will focus its capital allocation on the maintenance of its balance sheet. After accounting for its equity sales financing, Enbridge is positioned to increase its dividend steadily.
The firm has plenty of capacity to achieve higher output. Management will maximize opportunities from Gray Oak and Cactus II Pipeline. These items will add to free cash flow growth, which the company will distribute to shareholders through dividends and stock buybacks.
3M (NYSE:MMM) increased its dividend by a modest 0.7% in the last dividend declaration for shareholders of record on Feb. 17, 2023. In 2022, it returned $4.8 billion to shareholders through $3.4 billion in dividends and $1.5 billion in share repurchases.
3M increased shareholder value by cutting its outstanding share count by 16 million shares. It issued an exchange offer related to the Food Safety divestiture.
By simplifying its holdings, 3M is strengthening its balance sheet. It set a capital structure priority to achieve higher flexibility. By cutting its debt by 4% Y/Y to $12 billion, 3M will have more growth investment options ahead. It may spend more on R&D or make strategic investments.
The company is increasing efficiency in its supply chain by cutting 2,500 jobs in manufacturing. As the supply chain recovers from the pandemic-driven disruption, 3M may reduce costs further.
It will draw down its inventory and adjust prices. This will add value for its customers, increasing demand for its goods.
Sociedad Quimica Y Minera (SQM)
Sociedad Quimica Y Minera (NYSE:SQM) is a Chilean chemical company that mines lithium.
While the stock fluctuates with the price of lithium spot prices, its recent dividend hike, higher by 66.6% from the prior dividend, will interest income investors.
In the last quarter, the company discussed expanding its conversion plant in Chile. This will increase its total capacity of lithium hydroxide to 40,000 and 180,000 metric tons for lithium carbonate. In China, where it is expanding capacity, it will have a total of 30,000 metric tons. In 2024, it will have a new plant in Australia ready.
Sociedad is considering building a conversion plant in the U.S. Demand for electric vehicles is strong in China, Europe, and the U.S. EV sales in the U.S. could grow by up to 60% this year. This increases demand for Sociedad’s existing capacity.
W.P. Carey (WPC)
W.P. Carey (NYSE:WPC) issued a strong earnings outlook for this year. It has a healthy pipeline of transactions that will sustain its cash flow, which makes this a high-yield dividend stock to consider.
WPC expects funds from operations of $5.30 to $5.40 per share. Its investment volume in the range of $1.75 billion to $2.25 billion is above $1.4 billion in 2022.
The company benefits from sale-leasebacks, which lets it write and negotiate its leases. By dictating its terms, W.P. Carey CEO Jason Fox said that the company may negotiate 19.9-year terms for new deals. This increases the visibility of cash flow and locks in the cap rates. Both factors give investors the confidence that dividends will remain at 5% and could rise in the coming years.
People want to push back on inflation-linked increases. However, W.P. Carey has strong negotiating leverage. It can negotiate better terms because firms have few alternatives to raise capital from sale-leasebacks.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.