the S&P 500 The recession of the index in 2022 has raised its dividend yield to 1.6%. For context, this is still not much higher than the index’s all-time low return of 1.1% at the height of the dot-com bubble.
The good news for performance-oriented investors is that there are still plenty of options to turn to for safe and growing income. Here are three dividend stocks with yields ranging from 6.3% to 7.9%.
1. American British Tobacco
british american tobacco‘s (BTI -1.79%) The market capitalization of $91 billion makes it the second largest tobacco company on the planet, behind only philip morris international (New York Stock Exchange: PM). The British multinational has more than 150 million interactions with consumers every day in more than 175 markets around the world.
British American Tobacco’s success is due in large part to the variety of well-known brands it offers consumers. The company’s iconic cigarette brands, such as Camel, Newport and Dunhill, are at the core of its business.
But the future of British American Tobacco’s business depends on its new category of brands. These include the vaping industry leader known as Vuse and a hot tobacco brand called Velo, both of which have seen the company’s non-combustible customer base exceed 20 million. As more consumers switch to cigarette alternatives that are seen as less harmful, British American Tobacco believes it may increase that number to 50 million by 2030.
Investors, meanwhile, could see the company buy back more than $2 billion worth of shares. Shareholders already benefit from a generous 7% dividend yield that is well covered, as evidenced by a term dividend payout ratio of just 60%.
Overall, analysts expect the company to deliver 11% annual earnings growth over the next five years. And value investors will be pleased to know that they can buy shares at a forward price-to-earnings (P/E) ratio of just 9.2. That’s a huge discount compared to the industry average of 12.6.
2. Energy transfer
Energy doesn’t magically move from point A to point B. Behind the refined gasoline you pump into your vehicle or the natural gas you use to heat your home is the critical pipeline and storage infrastructure that made it all possible in the first place. . energy transfer‘s (ET -2.23%) a vast portfolio of energy assets in the US transports nearly a third of all US oil and natural gas in its pipelines.
Green energy will experience the most significant growth in the coming decades. But natural gas (Energy Transfer’s predominant business) will likely remain the lynchpin that holds the world economy together and meets its energy needs for decades to come. This is why the global demand for natural gas is expected to increase between now and 2040.
In addition to the strong fundamentals of the industry, the company itself also appears strong. Its distribution yield of 7.9% was hedged three times during the first half of 2022 with distributable cash flow (DCF). There should be more growth on this front as Energy Transfer works to restore its annualized distribution per unit to the pre-COVID level of $1.22.
To top it off, units of the shares are very cheap with a price-to-DCF ratio of 5.2 over the last 12 months.
3. Verizon Communications
With nearly 115 million wireless retail connections, Verizon Communications (VZ -1.25%) is one of the giants in the telecommunication industry. In recent years, smartphones have become strongly entrenched in American society with the ownership rate soaring from 35% in 2011 to 85% last year. And with smartphone usage seemingly growing every year, it’s hard to imagine that number not increasing slightly in the years to come.
Verizon’s dominant position in the US market, coupled with rising smartphone ownership rates, bodes well for the company’s future. This is why analysts believe the company’s earnings will accumulate at 3.4% per year for the next five years.
Verizon’s dividend payout ratio is poised to hit around 50% in 2022, leaving room for low-single-digit annual dividend growth. Paired with a whopping 6.3% dividend yield, in my opinion, this is enough growth for income investors to like stocks.
And if that’s not enough, the company’s 8.1 P/E ratio certainly bolsters the case. This is just above the telecommunications industry average of 7.5, which is a reasonable rating for a company of Verizon’s quality.
Kody Kester He has positions at British American Tobacco, Energy Transfer LP, Philip Morris International and Verizon Communications. The Motley Fool recommends British American Tobacco, Philip Morris International and Verizon Communications and recommends the following options: $40 January 2024 Long Calls on British American Tobacco and $40 January 2024 Short Puts on British American Tobacco. The Motley Fool has a disclosure policy.