Wall Street offers investors a variety of ways to make money. But few investment strategies have been as successful over the long term as buying dividend stocks.
Last year, The Hartford Funds and Ned Davis Research released data showing that dividend stocks had an average annual return of 9.18% over the past half-century (1973-2022). By comparison, a publicly traded company that does not pay dividends has achieved a fairly modest annualized return of 3.95% over the same 50 years.
It's no surprise that dividend stocks move around non-payers. Companies that consistently pay dividends to shareholders are almost always profitable and have a track record.
The most difficult part of investing for income seekers is figuring out which dividend stocks to buy. Considering that it is a benchmark, S&P500 (^GSPC -0.56%) is a great place to start your research as it is made up of the largest and most established businesses.
As of January 12, more than 20 S&P 500 stocks had yields above 5%, and three of them stand out for good reason. If you want to earn $300 in ultra-safe dividend income in 2024, all you have to do is invest $4,175 (split equally three ways) in these three high-yield S&P 500 stocks with an average yield of 7.2%.
Verizon Communications: 6.9% yield
The first high-income stocks in the benchmark S&P 500 that can help boost your wallet in the new year are telecommunications companies. verizon communications (VZ -1.07%). Despite Verizon's decisive rebound from its October 2023 lows, it still yields nearly 7%, which is near an all-time high.
Verizon faced something of a double whammy last year. First, rising interest rates have made the prospect of future debt-financed acquisitions less attractive. It also meant that the cost of refinancing the company's existing debt could be higher.
Another problem for Verizon is wall street journal This suggests that traditional communications providers may face significant financial and/or environmental costs associated with replacing lead-clad cables still in use. Verizon notes that lead-clad cables make up a small portion of its network.
Moreover, any liability will almost certainly be determined by the notoriously slow U.S. court system. To make a long story short, WSJ This story doesn't seem to do much for investors in the short term.
What isn't happening is the modest but steady growth Verizon is enjoying with the 5G revolution. Upgrading our network to support faster download speeds increased wireless revenue by nearly 3% in the quarter ended September and played a pivotal role in maintaining historically low churn rates. Ta.
Perhaps even more important is the sharp increase in broadband net additions that Verizon observed after purchasing mid-band spectrum in 2021. His ability to offer 5G internet speeds to business and residential customers helped him generate 434,000 net additions in the third quarter compared to the fourth quarter. – Net additions of at least 400,000 in consecutive quarters. Broadband is a source of predictable cash flow for businesses and the perfect dangling carrot to encourage users to bundle services.
Another thing to note is that wireless service and Internet access have practically become basic necessities. Consumers may cancel their cable contracts to save a few dollars, but they are unlikely to live without Internet access or wireless service. This makes Verizon's operating cash flow very predictable from one year to the next.
While Verizon isn't going to wow with its growth rate, its forward price/earnings ratio of 8 is a safe floor with reasonable upside as the operational benefits of the 5G revolution continue to persist. . Felt.
Altria Group: Yield 9.48%
The second super-dividend stock in the S&P 500 is a tobacco giant that can take home $300 in ultra-safe dividend income in 2024 with a starting investment of $4,175 (in 3 splits). altria group (M.O. -0.56%). Altria not only has the highest yield of nearly 9.5% among S&P 500 stocks, but it has also raised its dividend 58 times over the past 54 years.
Altria's biggest challenge is overcoming the declining share of adult smokers in the United States. Smoking rates among adults have fallen from about 42% in the mid-1960s to just 11.5% as of 2021, based on data from the Centers for Disease Control and Prevention. Given the amount of tobacco used, this number is unlikely to recover any time soon, as the public becomes more aware of the potential health risks associated with long-term smoking.
The decline in smokers isn't ideal, but it's not fatal to Altria's operating model.
One thing Altria has in its favor is that tobacco products contain nicotine. Because nicotine is an addictive chemical, Altria typically has no problem raising prices to more than offset the decline in cigarette shipments.
In addition to the above, Altria's premium cigarette brand Marlboro held over 42% share of the cigarette market as of the end of September. With control of such an important piece of the pie, the company has more room to raise prices without alienating its loyal customers.
But it's Altria Group's evolution as a business that could meaningfully enrich investors. For example, its $2.75 billion acquisition of e-vapor company NJOY Holdings in June gave the company access to the fast-growing e-vapor market.
Altria's investment in Juul didn't work out, but it won't make the same mistake twice. NJOY has received six Marketing Clearance Orders (MGOs) from the U.S. Food and Drug Administration for its products. An MGO is an authorization that allows the sale of electronic vapor products. The vast majority of e-vaping products do not contain his MGO and may be removed from retail shelves at any time.
At 8x forward P/E, Altria appears to be an impressive deal, as it generates strong cash flow from its traditional tobacco business and is expected to deliver meaningful long-term growth from the fast-growing smokeless segment. .
Real estate income: 5.23% yield
The third high-yielding S&P 500 stock that can help you generate $300 in ultra-safe dividend income in 2024 from an initial investment of $4,175 (divided evenly among three stocks) is a retail real estate investment trust (REIT). real estate income (oh -1.94%). The REIT pays a monthly dividend and has increased its dividend by 123 times (105 consecutive quarters) since becoming a public company in 1994.
The biggest risk for retail REITs is a recession. A contraction in the U.S. economy would not only undermine retail REITs' lease pricing power, but also increase the risk of rent arrears. I mention this risk because several dollar-based and forecast indicators suggest that a recession is a realistic possibility for the U.S. economy in 2024.
The good news for Realty Income is that there are several ways to reduce recession risk while continuing to steadily increase funds from operations (FFO).
The composition of Realty Income's commercial real estate (CRE) portfolio of approximately 13,300 properties is a major reason for the company's continued success. He has over 1,300 different rental agents in 85 industries.
Most importantly, 91% of the total rent collected comes from businesses deemed “recession-proof and/or insulated from e-commerce pressures.” We derive more than one-third of our annual contracted rent from businesses that provide essential goods and services, such as grocery stores, convenience stores, dollar stores, and drug stores, ensuring a highly predictable FFO.
Additionally, Realty Income is diversifying its CRE portfolio beyond retail.Obtaining Spirit Realty Capital The all-stock deal, valued at $9.3 billion, will see the combined company enter a new industry. Additionally, Realty Income has made two of his deals in the gaming industry in the past two years.
Real estate income is currently valued at 13.8x 2024 consensus cash flow forecasts. This is the lowest price-to-cash flow multiple in 10 years, and 27% below the average price-to-cash flow multiple over the past five years.