Investors have enjoyed higher Treasury yields, serving up passive income over the past couple of years. However, there's still an abundance of quality dividend stocks that offer potential price appreciation and stellar dividend income.
High dividend yields can be a red flag sometimes, but there are exceptions. Here are three of them: Altria (MO 1.78%), AT&T (T 3.40%), and Enbridge (ENB 2.29%).
I'll detail what makes them stand out as high-yield dividend stocks you can buy this month and hold for those juicy dividends. You might even score some solid capital gains, too.
1. This stock packs a smoking-hot 8.8% yield
Tobacco giant Altria is the perennial "dying company" that seemingly won't die. While it's true that smoking rates in America have collapsed over the span of decades, people underestimate how much price increases and population growth can support Altria's core Marlboro business. That's why Altria remains a Dividend King to this day, and frankly, the dividend faces little stress thanks to a manageable 75% dividend payout ratio.
The company's presumed demise has shares trading at a modest valuation of less than 9 times earnings. Management felt that was a good enough value to begin selling off a piece of its multibillion-dollar stake in Anheuser-Busch to do an accelerated share repurchase program. That's called putting your money where your mouth is!
Earnings are growing at a low-single-digit rate, so this isn't a story of quick riches. Still, you only need low-single-digit growth to hit double-digit returns when your stock yields almost 9%. Enjoy this rock-solid dividend stock, which could produce sneakily good total returns if shares become popular on Wall Street again.
2. A telecom bargain yielding 6.5%
U.S. telecom giant AT&T is another supposed yield trap with the goods to keep cashing those fat dividend checks. The company's core business is doing great; AT&T picked up a healthy 1.6 million new subscribers in Q1, and the business is poised to generate between $17 billion and $18 billion in free cash flow this year. The dividend costs AT&T just over $2 billion per quarter, so that's a meager payout ratio that funds the dividend and leaves enough money to continue paying down debt.
It took a dividend cut a couple of years ago to put the company in this position. So, while investors may be traumatized by the prior cut, it shouldn't be something to lose sleep over moving forward -- meanwhile, shares trade at a price-to-earnings ratio of just under 8 today.
Like with Altria above, a high dividend yield means you don't need a ton of growth to obtain double-digit total investment returns. Analysts only expect 2% to 3% earnings growth over the long term, but I've outlined why AT&T could do better. At the very least, AT&T represents an excellent income stock that still yields more than Treasury bonds.
3. This 7% yielding stock just turned in a stellar quarter
Enbridge might be an underestimated energy stock. The company's core business of transporting oil and gas in its pipelines throughout North America makes it a toll-booth operator in the energy industry. Enbridge makes money from people needing oil and gas products because it bills based on the volume of materials in its pipes. Enbridge has a utility business and renewable energy projects, so this company is more diverse than some may give it credit for.
The company's dividend yields over 7% today, and that's a payout investors can trust. Enbridge just turned in Q1 earnings, headlined by 1.63 Canadian dollars per share in funds from operations (FFO) against a quarterly dividend of CA$0.915, a payout ratio of 56%. The company has raised its dividend for 28 consecutive years, so investors can take comfort in the modest payout ratio and healthy track record.
Once again, a high-yield dividend stock trades at a low valuation. Analysts believe the company will earn $3.84 (estimate in U.S. dollars), which values shares at a price-to-FFO ratio of just under 10. I'll say it again: Generating solid total returns doesn't take much growth when you have a blue chip stock with a high starting dividend yield. Analysts have Enbridge growing earnings by 10% next year, which should be enough to set investors up for some stellar returns.
