The most obvious reason investors should buy high-yield dividend stocks is that they provide income. Non-dividend stocks do not provide income and only provide cash when sold. Dividend stocks on the other hand, provide income on a quarterly basis and sometimes monthly. They also buffer against losses and more.
That doesn’t mean any investor seeking income should run out and buy any old dividend stock. There are plenty of factors to consider, one of the most important of which is yield. Yield is calculated by dividing the annual dividend by the share price. A $10 stock providing 50 cents of annual dividends yields 5% (0.50/10 = 0.05). A healthy dividend yield is considered to be in the 2% to 6% range.
That’s why I’ve chosen 6%: it maximizes the income considered to fall within the safe range.
Pfizer (PFE)
Pfizer (NYSE:PFE) is currently in an interesting spot for a number of reasons. The most obvious and impactful reason is that windfall Covid-19 vaccine revenues have dried up. That is news to no one: investors watched the stock fall from $50 to $28 throughout 2023. It has been trading around $28 for the last five or six months.
The obvious positive for income investors is that yields have risen substantially during that time. Those yields currently stand above 6%. The problem is that Pfizer’s current payout ratio is above 1, meaning it consumes all of earnings and then some. Yet, it’s doubtful the company will reduce the dividend anytime soon. It is currently the main attraction of the stock overall and the company is aware of that.
Furthermore, the company’s most recent earnings were positive overall, beating expectations. Pfizer posted 82 cents in earnings, beating expectations by 31 cents. Revenues were nearly $1 billion better than expected. That earnings boost will help the payout ratio to become healthier.
The company is undertaking a substantial cost reduction plan and is already seeing strong revenues from product launches suggesting it could break out soon.
Realty Income (O)
I’d argue that Realty Income (NYSE:O) is the best REIT stock available to investors. That is important to note because many investors are worried about the commercial real estate market. However, Realty Income is differentiated and does not rely on office space tenants which is a particular area of risk. It operates a business that is intelligently selective.
All that means is the company signs long-term leases with highly stable retail renters. It also does so under triple net leases that push significant costs onto the lessor. Mortgage owners inherently understand the burden of real estate taxes and insurance hikes in this current environment. Realty Income places the burden of those fees on the lessor leaving much more for investors.
That manifests as a dividend yielding 6.2% at the moment. There are plenty of signs the company will continue to pay and increase that dividend. First, it recently increased the dividend by 2.1%. Second, the company recently signed $598 million worth of investment volume with an average initial cash yield of 7.8%, well above the 6.2% dividend.
Orange (ORAN)
It’s easy to understand why investors should consider Orange (NYSE:ORAN) stock. The European telecommunications firm is heading in the right direction and should reward investors moving forward.
Nothing about the company’s fundamentals pops out as particularly impressive. The company is growing steadily and appears well-operated. Yet, the reason income investors should be particularly interested is the company is substantially raising its dividend. The result is the forward dividend yield stands above 15% while the trailing yield is nearly 6.6%.
I mentioned that the company’s fundamentals are good but not particularly impressive. A bullish investor could easily argue that the company’s double-digit growth in Africa and the Middle East makes it impressive.
In either case, Orange is a stable, giant telecom firm that should continue to provide income to investors. Those investors shouldn’t expect substantial price appreciation from the shares themselves but the strong forward dividend yield more than makes up for it.
United Microelectronics (UMC)
A cursory glance at chip wafer foundry United Microelectronics (NYSE:UMC) might concern some investors. After all, many chip stocks are still suffering as inventory levels remain high due to previous over-investment.
United Microelectronics also saw revenue decline during the most recent quarter. That indicates it is just one of many chipmakers currently suffering the same fate. However, the stock is clearly trying to break out. A lot of that has to do with the expectation of continuous improvements in wafer shipments. Those shipments increased by 4.5% in the first quarter. CEO Jason Wong believes that trend will continue throughout the second quarter as inventory health continues to improve from the producer perspective.
While inventory levels continue to normalize, investors should console themselves with the dividend yielding 6.8%. The company has grown that dividend by nearly 48% over the last five years. The payout ratio is a little bit high but not unmanageable at 0.85%. Overall, there’s a lot to like about United Microelectronics and plenty of reason to invest for income seekers.
Gerdau (GGB)
Gerdau (NYSE:GGB) is a Brazilian steel manufacturer and an intriguing stock for income investors.
The stock includes a dividend yielding 6.6% and offers a lot in the way of optimism. That optimism stems from the company’s most recent earnings from early May. Net income increased by 70% sequentially during the first quarter. The company distributed $589 million worth of dividends during that period. As a bonus, the company awarded shareholders one additional share for every five currently owned. That effectively equates to a 20% return.
Part of the reason for the distribution has to do with performance over the past several years. Share prices currently stand at $3.50 per share but have fallen from $5 frustrating investors in the process.
The company is well-regarded and is the only steel company represented within the Merco Ranking, which ranks the most reputable companies in South America. There’s a lot to like about Gerdau and it makes a strong choice for income seekers.
Hafnia Limited (HAFN)
Hafnia Limited (NYSE:HAFN) operates oil tankers from its Bermuda headquarters. That includes more than 200 vessels, 4,000 employees and offices in Singapore, Houston, Dubai and Copenhagen. HAFN is a momentum stock and is up more than 13% in 2024.
The company continues to benefit from disputes that have disrupted shipping routes globally. Hafnia Limited reported higher spot rates during the first quarter.
On April 9th the company began listing its common shares on the New York Stock Exchange. It was previously listed on the Oslo Stock Exchange.
Hafnia Limited is very clearly dedicated to its shareholders as it relates to dividends. The company will raise its dividend payout ratio from 70% to 80% when its net loan-to-value ratio is between 20 and 30%. Once that figure falls below 20%, the company intends to raise its dividend payout ratio to 90%. The stock also offers a lot of value in terms of its price-to-earnings ratio, which stands at 6 on a trailing and forward basis.
Copa Holdings (CPA)
Copa Holdings (NYSE:CPA) is a particularly impressive airline stock. I say that because the company is thriving despite significant headwinds.
The company increased its net earnings by $18.1 million during the first quarter, reaching $176.1 million overall. That included the negative impact related to the grounding of 21 Boeing 737 Max 9 aircraft.
Despite the issues, demand remains strong at Copa Holdings. Traffic increased by 7.1% during the first quarter on a year-over-year basis. Overall revenues increased by 3% during the same period.
The company is clearly invested in rewarding its shareholders. It is currently in the midst of a share repurchase program valued at $200 million. By the end of the first quarter, the company had repurchased $40 million of the total. The dividend itself yields 6.5% and benefits from a low payout ratio of 0.27. So, despite the relatively high yield, Copa Holdings has room to move higher or maintain the already high yield dividend and reinvest earnings elsewhere.
On the date of publication, Alex Sirois 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.