In my mind a “jumbo” dividend yield — within the context of the low interest-rate environment — is anything above, say, 3%, or more than double the yield of the broad market and 10-year Treasury, notes Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.
Of course, chasing yield has never been a great investment approach. Building a portfolio strictly based on yield will limit your portfolio diversification (a lot of high-yielding stocks aggregate in a few industries), stunt your portfolio’s dividend-growth prospects, and limit the portfolio’s capital-gains potential.
Still, there are some stocks with jumbo yields that do represent decent portfolio holdings and should provide healthy cash flow, growing dividend streams, and reasonable capital-gains potential.
The stocks profiled here have yields of at least 3% and have shown dividend growth over the last five years. They also offer a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.
ExxonMobil (XOM) is yielding well over 6%. Oil stocks, including Exxon, have backed off their highs sharply in recent trading. I view the pullback as offering a decent entry point with these shares.
I am feeling more comfortable with the sustainability of the company’s dividend. Earnings estimates for 2021 and 2022 have risen sharply in the last 30 days. The consensus earnings estimate for 2022 is $4.86 per share, exceeding the company’s current dividend of $3.48.
To be sure, Exxon’s earnings can swing greatly depending on oil prices, so the company is not completely out of the woods at this point. Still, I own the stock and expect these shares to find decent support in the upper $40s.
Exxon continues to have one of the more user-friendly direct-purchase plans. Minimum initial investment is $250. The firm will waive the minimum if an investor agrees to automatic monthly investment of at least $50. There are no fees on the buy side in the plan. The plan also includes traditional and Roth IRA options.
I have to admit I’ve been lukewarm on Pfizer (PFE) for a long time, and the stock didn’t exactly prove me wrong – until recently. Indeed, after trading sideways for the better part of two decades, the stock has moved sharply higher this year.
The top line is getting a nice lift from the firm’s Covid vaccine. And it appears that demand here will have legs, with the government looking at booster shots to fend off Covid variants.
Pfizer is still not what you would consider an expensive stock. These shares trade at roughly 14 times 2022 earnings estimates. You have to respect the recent price breakout. And the dividend yield of 3.2% is a nice kicker to total-return potential. For investors looking for a relatively high yield in the pharma space, Pfizer is looking better now than it has in many years.
Please note Pfizer offers a direct-purchase plan. Minimum initial investment is $500. The firm will waive the $500 minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50 for 10 consecutive months.
One stock that I have really warmed up to over the last few months is Philip Morris (PM). The company, best known for its international cigarette business, is transforming its business in a number of ways.
For starters, the firm has been expanding its revenue flow from its IQOS heat-not-burn tobacco products. Philip Morris hopes to generate more than one-half of its revenue from smoke-free products by 2025.
Philip Morris has also been expanding its exposure to therapy-delivery systems. The firm recently announced the planned acquisition of Vectura (VEC.L), a United Kingdom-based pharmaceuticals business specializing in inhaled medicines. The acquisition joins other deals the firm has made to further its “Beyond Nicotine” strategy.
The stock has responded to the moves, with these shares recently moving to a new 52-week high. However, the stock is still reasonably valued at just 15 times fiscal 2022 earnings estimates. The dividend yield of 4.7% is especially attractive in this low-yield environment.
I know some investors will have issues investing in a tobacco company, and I understand the hesitancy. But Philip Morris is more than just a tobacco company, and I believe the transformation will result in a higher stock price.
The company’s direct-purchase plan has a minimum initial investment of $500. The firm will waive the $500 minimum if an investor agrees to automatic monthly investment via electronic debit of a bank account of at least $50 for 10 consecutive months. The plan includes both a traditional and Roth IRA option.