5 high-yield stock picks to add to your dividend portfolio

USA Today

2 days ago

It might be prudent to make a point of collecting a little more cash in the near future, and worry a little less about growth.
Does the prospect of economic uncertainty have you rethinking your portfolio? Perhaps you'd like to collect a little more cash while the economic headwinds are blowing? It's not an unreasonable concern. Plenty of other investors are already thinking more defensively.
To this end, here's a closer look at five high-yielding dividend stocks to consider adding to your portfolio sooner rather than later, until it's clear the worst is behind us.
1. Verizon Communications
Dividend yield: 6.2%
Verizon Communications is, of course, one of the country's biggest wireless service providers, boasting well over 100 million paying customers who collectively handed over nearly $135 billion worth of revenue last year alone. Of that, $18 billion was turned into net income, $11.25 billion of which was dished out to shareholders in the form of dividends. That's in line with the company's long-term norms.
There is an arguable downside here. That's growth ... or lack thereof. The well-saturated U.S. wireless market doesn't offer much in the way of upside potential above and beyond simple population growth. Verizon is finding some inroads within the institutional/private 5G communications space, but that's a highly competitive market. There's just not a ton of expansion to be added here either.
What Verizon may lack in growth potential, however, it more than makes up for in consistency and sheer payout. Nobody's interested in giving up their mobile phones, which supports a sizable forward-looking yield of 6.2% that's based on a dividend that has now been raised for 18 consecutive years. Not bad.
2. Realty Income
Dividend yield: 5.6%
Realty Income isn't a stock in the traditional sense. Rather, it's a real estate investment trust, or REIT. That just means it owns a portfolio of rent-bearing real estate.
REITs trade just like ordinary stocks do, and pay dividends the same way that dividend stocks do, too. And Realty Income brings something else to the table that's pretty unique in addition to its sizable forward-looking yield of 5.6%. That's a monthly dividend payment, as opposed to the quarterly cadence you'll get with most other dividend stocks.
Realty Income's specialty is retailing real estate. In light of the so-called "retail apocalypse" that seems to never end, this focus seems like a liability. But take a step back and look at the bigger picture. While numbers from Coresight Research point out that 7,325 U.S. stores were shuttered last year, 5,970 new stores were opened (or reopened). Realty Income further narrows this gap by serving the strongest survivors in the business. Its top tenants include 7-Eleven, Dollar General, Dollar Tree, and FedEx, just to name a few. Underscoring the quality caliber of its renters is the fact that its occupancy rate currently stands at an industry-beating 98.5%, and only fell to 97.9% in COVID-crimped 2020.
This resilience is one of the reasons the REIT has been able to raise its payout annually for the past 30 consecutive years.
3. SPDR Portfolio S&P 500 High Dividend ETF
Dividend yield: 4.6%
Speaking of dividend stocks that aren't actually stocks, add the SPDR Portfolio S&P 500 High Dividend ETF (NYSEMKT: SPYD) to your watch list, if not to your portfolio.
An ETF (or exchange-traded fund) is a basket of stocks with a common characteristic. In this instance, these tickers are all part of the S&P 500 High Dividend Index, which tracks the 80 highest-yielding names within the S&P 500.
These include Philip Morris, toymaker Hasbro, AT&T, and Ford Motor Company, for reference. None of these names has a great deal of growth firepower. All of them, however, are healthy dividend payers. Most of them also have a solid track record of dividend growth, even if it's not required for inclusion in the underlying index.
Sure, you can probably find higher dividend yields than the one SPYD offers. The aforementioned Realty Income and Verizon both boast bigger ones, for instance. The SPDR Portfolio S&P 500 High Dividend ETF is still an incredibly simple way of achieving a well-diversified mix of dividend stocks though, with a little more potential for capital appreciation than Verizon or Realty Income offer.
4. Pfizer
Dividend yield: 6.9%
It's no secret that drugmaker Pfizer (NYSE: PFE) has underperformed since the wind-down of COVID-19, which upended sales of its Paxlovid approved to treat the disease. The company's top line has slipped from 2022's $100 billion to only $64 billion last year, for perspective, and analysts aren't looking for any sales growth this year or next either. That's the chief reason Pfizer shares continue to flounder.
If you can look just a little further down the road, though, some new blockbuster drugs are in the works -- drugs like vepdegestrant, for the treatment of ER+/HER2- metastatic breast cancer. While it will be competing with plenty of other therapies in this same space, it's noteworthy that the FDA fast-tracked this drug, which is being co-developed with Arvinas.
And that's just one. Pfizer got a total of four promising oncology drugs with its 2023 acquisition of Seagen, and now has over 100 clinical trials underway, 30 of which are in phase 3 (late-stage) testing. Indeed, the company believes it's got eight oncology candidates in its developmental pipeline that could become blockbusters by 2030. Little of this long-term upside is being reflected in the stock's present price, however, even though it arguably should be.
More to the point for interested income investors, this pharmaceutical stock's weakness has pushed its forward-looking dividend yield up to nearly 7% at a point where the pharma giant is on the verge of significant prolonged revenue and profit growth.
5. Global X Nasdaq 100 Covered Call ETF
Dividend yield: 14%
Finally, consider adding a stake in the Global X Nasdaq 100 Covered Call ETF (NASDAQ: QYLD) to your dividend portfolio.
It's not a stock. It's an exchange-traded fund. And an unusual one at that. While it holds the same tickers that make up the tech-heavy Nasdaq-100 index, serving as an index fund isn't its primary purpose.
Rather, this ETF's purpose is to generate reliable income that's regularly distributed to shareholders by selling covered calls against the ETF's stock holdings. It's an income-generating process called "buy-write," in fact -- you're buying a stock, and then "writing" (or selling) call options on those shares, essentially using them as collateral.
And the process works. Although the income generated by writing covered calls over and over again can be erratic (don't count on that trailing 14% yield going forward), the resulting reliable yields are typically big even if they're not precisely predictable.
There's also a big downside, though. That is, this fund is almost certainly guaranteed to underperform the Nasdaq-100 itself, even after factoring in all of its sizable dividend payments. That's just the nature of selling covered calls -- the strategy doesn't let you fully participate when the market's rallying the most. Writing options is just a means of monetizing stock holdings when they're mostly moving sideways, or losing ground.
Still, with a double-digit yield, even only capturing a portion of the Nasdaq-100's long-term upside isn't a bad bet. It's just arguably not the only dividend-paying investment you'd want to own at any given time, mostly due to its inconsistent payments.
James Brumley has positions in AT&T. The Motley Fool has positions in and recommends FedEx, Pfizer, and Realty Income. The Motley Fool recommends Hasbro, Philip Morris International, and Verizon Communications. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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