After the FOMC meeting on December 13th, the Federal Reserve signaled the end of the bias toward rate hikes. Out of 19 Fed officials, 17 project the Fed funds rate to ease by the end of 2024, and zero members see them increase.
In such a macro environment of easing, dividend yields tend to rise. After all, cheaper borrowing costs make companies invest more in expansion, boosting cash flow and earnings. Moreover, dividend stocks become more attractive when treasury yields lower in an easing environment.
For investors seeking recurrent income, this represents an opportunity. One that can come at a low risk if investors pick safe companies. Such blue chip, dividend-paying stocks are less volatile due to entrenched market position and long record of profitability.
These three dividend stocks, in particular, stand out of the crowd with higher-than-average dividend payouts.
Pfizer, Inc. – 5.82% dividend yield
Somewhat controversial in recent years, this pharma giant has seen a steady stock decline, losing 45% of share value year-to-date. At $27 per share, PFE stock is now at the lowest level since October 2014, cut in half since the pandemic narrative boost.
Yet, this also means that Pfizer Inc (NYSE:PFE) stock is in deep discount territory for a relatively high dividend yield of 5.82%, delivering a $1.64 annual payout per share. Outside of Comirnaty, which generated 38% of Pfizer’s total revenue in 2022 at $37.8 billion, Pfizer holds eight high revenue-generating drugs unrelated to the pandemic narrative.
As of the Q3 earnings report, the drug generated merely $1.31 billion in sales, 70% down from a year-ago quarter. During that unprecedented cash-boosting period, the company has been aggressively expanding. Since 2020, Pfizer acquired Arixa, Amplyx, Trillium, and Arena Pharmaceuticals.
Most recently, Pfizer completed a $43 billion deal to acquire Seagen, the world leader in innovative cancer treatment therapies. Viewed as overpaid by the Wall Street Journal, Pfizer is nonetheless setting the ground for the next stage of high-revenue patents and drug rollouts.
In May 2023, Pfizer Chief Financial Officer David Denton informed Barron’s that the company would shift to stock buybacks and dividend yields to make PFE more attractive.
“We’ll be able to get more balanced into increasing our dividends, maybe more rapidly than we’ve had in the past,”
In 2022, Pfizer allotted $2 billion on share buybacks. Based on 20 analyst inputs pulled by Nasdaq, PFE stock is positioned as a “buy.” The average PFE price target is $32.67 vs the current $27. The high estimate is $45, while the low forecast is aligned with the present price of $27 per share.
Philip Morris International, Inc. – 5.46% dividend yield
The multinational tobacco company is the world leader, holding 14% of the global cigarette market, just ahead of China National Tobacco Corporation. Although tobacco use has been in a steady decline, it is regionally uneven. Presently, Philip Morris International Inc (NYSE:PM) delivers a 5.46% dividend yield, with a $5.20 per share annual dividend payout.
According to WHO, PMI’s market will drop to 1.27 billion people by 2025 from 1.3 billion in 2021. This pool of customers is still deep, and PMI is preparing for the decline with investments in non-tobacco rollouts. From smoke-free products like E-Vapor and IQOS to VEEV and digital healthcare, PMI’s long-term plan is to transition into a “broader lifestyle, consumer wellness and healthcare company.”
In May 2022, PMI suspended its three-year share repurchase program. This was in the aftermath of buying over 93% of Swedish Match outstanding shares worth $16 billion. Swedish Match was the key stepping stone for PMI in delivering smoke-free nicotine products.
As of the Q3 earnings report, PMI increased its revenue by 10.6% to $26.1 billion from a year-ago quarter. The cost of sales increased 15.1% for the same period, owing to a 90% increase in depreciation, amortization, and impairment of goodwill and other intangibles. This is expected from the PMI’s transitioning phase.
Based on 15 analyst inputs pulled by Nasdaq, PM stock is a “strong buy.” The average PM price target is $107.59 vs the current $93. The high estimate is $120, while the low forecast is $85.5 per share.
Verizon Communications, Inc. – 7.08% dividend yield
Previously covered in October, Verizon Communications Inc (NYSE:VZ) continues to be the safe dividend-paying stock. At a 7.08% dividend yield, the telecom giant delivers a $2.66 annual dividend payout per VZ share.
As of Q3 2023, Verizon holds the leading market share in the telecommunications services industry at 38.65%, ahead of AT&T (32.67%) (NYSE: T) and T-Mobile (22.58%) (NASDAQ: TMUS). As safe investments go, providing digital infrastructure for a digital world leaves little room for risk.
In the Q3 earnings report, Verizon increased its broadband subscribers by 21% year-over-year to 10.3 million. The company’s profitability continues to increase, expanding cash flow from operations to $28.8 billion, a 2.1% uptick from a year-ago quarter.
This is impressive in the thin profit margins telecom industry, given that Verizon reported a 2.6% decrease in the total operating revenue of $33.3 billion from a year-ago quarter.
Based on 21 analyst inputs pulled by Nasdaq, VZ stock is a “buy.” The average VZ price target is $39.41 vs the current $37. The high estimate is $45, while the low forecast is $31 per share.
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