Fixed-income stocks have been in demand recently, thanks to expectations that U.S. Treasury yields will stay tame in the second half of the year amid fresh signs that the economic recovery from the pandemic could be slowing.
That has pushed investors into companies whose dividend payouts beat those offered on U.S. government bonds.
Indeed, the ProShares S&P 500 Dividend Aristocrats ETF (NYSE:NOBL)—a measure of companies that have increased their dividends annually for the last 25 years or more—is up 13.5% this year, trading just below its all-time high.
With that in mind, we've been looking at the three stocks presented below, which could provide some of the best long-term growth potential currently available and are well worth considering given their large dividend yields and strong earnings growth.
1. Philip Morris International
- Dividend Yield: 4.79%
- Market Cap: $153.7 Billion
- Year-To-Date Performance: +19.1%
Philip Morris International (NYSE:PM), which was spun off from Altria (NYSE:MO) in 2008, is an American-Swiss multinational cigarette and tobacco manufacturing company. Its most recognized and best-selling product—which is sold in over 180 countries around the world—is the Marlboro brand.
The New York City-based company has capitalized on its recent shift to reduced-risk tobacco products, most notably its iQOS smoke-free heated tobacco device, which releases nicotine by heating, instead of burning, tobacco.
PM stock—which has gained about 19% year-to-date—closed at $98.65 on Tuesday, within sight of a recent three-year high of $100.94 reached on June 16. At current levels, the Big Tobacco company has a market value of $153.7 billion.
Good quality blue-chip dividend stocks tend to perform well in an environment of low bond yields. The tobacco company currently offers a quarterly dividend of $1.20 per share, which implies an annualized dividend of $4.80 per share, at a yield of 4.79%.
For comparison, the yield on the benchmark U.S. 10-year Treasury stood at around 1.36% late Tuesday.
Philip Morris, which posted upbeat financial results in the last quarter and raised its full-year guidance, is slated to next report earnings before the U.S. market opens on July 20.
Consensus calls for earnings per share of $1.55 for its second quarter, improving from EPS of $1.29 in the year-ago period. Revenue is expected to increase roughly 15% year-over-year to $7.68 billion, driven by the continued strength of IQOS, as well as further progress with operating cost efficiencies.
Additionally, shareholders will pay close attention to PM’s plans to return more cash to investors. The company approved a new stock buyback plan of up to $7 billion in the last quarter.
2. Kinder Morgan
- Dividend Yield: 5.82%
- Market Cap: $41.7 Billion
- Year-To-Date Performance: +34.9%
Kinder Morgan (NYSE:KMI) is one of the biggest energy infrastructure companies in North America. Its core business operations involve transporting oil, natural gas, and related products through its vast network of pipelines and terminals.
The Houston, Texas-based petroleum firm—which operates approximately 85,000 miles of pipelines and 152 terminals—is the largest U.S. independent transporter of refined petroleum products and of carbon dioxide.
KMI stock, which is up around 35% in 2021, ended at $18.44 yesterday, not far from its recent 13-month peak of $19.29 reached on June 11. At current levels, the energy pipeline giant has a market cap of $41.7 billion.
High-dividend stocks tend to react well in a low-rate environment as the hunt for yield intensifies. Kinder Morgan raised its quarterly dividend by 3% in April to $0.27 per share. This represents an annualized dividend of $1.08 and a yield of 5.82%, one of the highest in the midstream energy sector.
In addition, lower rates usually lead to a weaker dollar, which in turn boosts the value of dollar-denominated oil futures contracts, as this makes 'black gold' cheaper for buyers in other currencies. This tends to help stocks of energy-related firms.
Kinder, which reported earnings and revenue that easily topped expectations in in the previous quarter, next reports financial results after the U.S. market closes on July 21.
Analysts call for EPS of $0.18 for the second quarter on revenue of $2.87 billion. Beyond the top- and bottom-line figures, investors will be eager to hear if the pipeline company plans to return more cash to shareholders in the form of higher dividend payouts and share buybacks.
3. Realty Income
- Dividend Yield: 4.19%
- Market Cap: $26.5 Billion
- Year-To-Date Performance: +9.8%
Realty Income (NYSE:O) is a real estate investment trust (REIT) that specializes in freestanding retail and commercial properties in the U.S., Puerto Rico, and the UK.
The company, which owns 6,662 properties totaling more than 115 million rentable square feet, focuses on businesses that are less threatened by e-commerce or recessions, such as convenience store chains, like Walgreens Boots Alliance (NASDAQ:WBA) and 7-Eleven, as well as discount retailers, like Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG).
It also concentrates on non-discretionary businesses that have a service component, such as fitness gyms and movie theaters, like LA Fitness and AMC Entertainment Holdings (NYSE:AMC).
Up roughly 10% year-to-date, O stock ended Tuesday’s session at $68.25, earning the San Diego, California-based REIT a valuation of $26.5 billion.
The company’s substantial dividend payouts and attractive yield make Realty Income a likely candidate to outperform in the months ahead as Treasury yields languish near multi-month lows.
Realty is one of just a few REITs that pays dividends monthly, rather than quarterly, and has trademarked the phrase ‘The Monthly Dividend Company’ as its official nickname.
The real estate company—which has increased its dividend for 94 consecutive quarters—currently offers a monthly payout of $0.235 per share. This represents an annualized dividend of $2.82 per share and a yield of 4.19%, making it an extremely attractive play in the current environment of declining rates.