These value stocks come with reliable dividends.
Now that more than 100 million people in the U.S. have been vaccinated, some investors are starting to wonder if the biggest bump to the stock market is behind us — and that a return to growth is now priced in. It’s also not very encouraging to growth-oriented investors that Treasury Secretary and former Federal Reserve Chair Janet Yellen mentioned earlier this week that higher interest rates may be necessary to keep the U.S. economy from overheating. In such an environment, value investments may be coming into focus as investors have less appetite for risk and want tried-and-true names with inherent value to their operations. The following seven stocks are large and entrenched value plays that may be worth a look right now both for their stability and dividend yields of 5% or more.
Annaly Capital Management (ticker: NLY)
Financial stocks tend to be popular value investments as these company’s sit on a large amount of assets with tangible value. Annaly is a bit different in that it mainly finances residential and commercial real estate, and its assets are mostly mortgage-backed securities and related loans. The company is structured as a real estate investment trust, or REIT, but it doesn’t actually operate these properties and instead just focuses on the loans. It’s a unique business, but it’s one with deep underlying value. NLY also has a strong history of generous dividends as it passes on a bit of these loan payments to shareholders via a 22-cent quarterly payday.
Current yield: 9.73%
Big Telecom stock AT&T is a poster child of value investing because it has such strong underlying financials and an entrenched business that isn’t easily disrupted. Specifically, AT&T has a $230 billion market capitalization, generates more than $170 billion in annual revenue and tallied an impressive $43 billion in net operating cash flow last year. While there’s admittedly a lack of breakneck growth ahead as AT&T is pretty much locked in a dead heat with domestic telecom rival Verizon Communications (VZ), income investors can take comfort in the stability of operations and the high barrier to entry in this industry — as well as the steadily growing dividend that has been increased in each of the last 35 years.
Current yield: 6.6%
Energy Transfer (ET)
Though not exactly a household name, experienced income investors may already be familiar with Energy Transfer as it’s one of the most popular “midstream” energy players on Wall Street. As that term implies, ET stock sits at the middle of the natural gas supply chain helping producers transport and store the fossil fuel before it’s sold by wholesalers, used by industrial companies or burned by power plants to create electricity. As a result of this business model, ET doesn’t make the margins that energy production firms can when prices rise — but on the other hand, this stock remains insulated from any downside risk, as it can charge similar rates in both good times and bad. With a $24 billion market cap and a massive network of more than 90,000 miles of pipeline and associated infrastructure, ET is a safe and reliable value stock regardless of the broader economic environment.
Current yield: 6.82%
A lot of pharmaceutical companies have been in the news over the last year thanks to their relationships to COVID-19 treatments. GSK is worth a look in 2021 because of its value-oriented approach that includes a robust consumer health product line. In addition to branded pharmaceuticals, GlaxoSmithKline makes Aquafresh, Sensodyne and Polident dental products along with over-the-counter medications like Advil pain reliever, Flonase allergy medication and Tums antacid. The steady flow of cash from these respected products doesn’t demand a hefty research and development budget or patent protection, allowing the nearly $100 billion GSK to rely on a stable foundation of sales to fuel its generous dividend.
Current yield: 5.65%
Iron Mountain (IRM)
Iron Mountain is an interesting value play because it sits astride a mature legacy business and a growth-oriented digital arm that is taking the company into the future. Iron Mountain began in the early 1950s as a document storage company, and it continues to make a pretty penny from businesses that don’t have the space or inclination to trouble themselves with on-site archives. On top of that, IRM now offers information management and security offerings for the digital age. Either way, once IRM lands a client, it enjoys regular fees for storage that fuels a reliable and growing dividend. Its operating cash flow — that is, cash generated by normal business operations after paying the bills — is roughly $1 billion annually, a huge cushion for a stock valued at only $11 billion. Payouts have surged from about 25 cents quarterly in 2014 to nearly 62 cents at present for growth of roughly 150% in distributions.
Current yield: 6.39%
PPL Corp. (PPL)
On one hand, mid-Atlantic electricity provider PPL hasn’t exactly been kind to investors in the last few years as it has underperformed both peer utility stocks and the broader market. However, what the company lacks in past performance it makes up for with a current yield that is among the very best in the entire utility sector. And looking forward, value-oriented investors may be particularly interested in the restructuring that is going on involving the pending divestiture of U.K. operations and the deployment of that cash on domestic electric operations in Rhode Island. This will make for a more focused and reliable operation, and considering PPL has consecutively increased its annual dividend for roughly a decade, you can expect these moves to translate to continued income to investors over the long haul.
Current yield: 5.74%
Rio Tinto (RIO)
You may not be familiar with Rio Tinto, but this London-based megaminer is one of the largest materials stocks in the world. Its mining and processing operations span aluminum, copper, diamonds, gold and uranium, to name a few products. This diversified operation combined with deep relationships with manufacturers and other end users means RIO stock isn’t sensitive to cyclical demand. If one area pulls back a bit, the company tends to have other opportunities to fall back on and keep its operations humming along. It also goes without saying that materials like gold are a store of value in any economic environment, providing a strong foundation for this company. Just be aware the stock pays dividends twice annually, not once per quarter as is typical of major U.S. stocks.
Current yield: 5.13%
Seven high-yield dividend value stocks to buy:
— Annaly Capital Management (NLY)
— AT&T (T)
— Energy Transfer (ET)
— GlaxoSmithKline (GSK)
— Iron Mountain (IRM)
— PPL Corp. (PPL)
— Rio Tinto (RIO)
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Update 05/06/21: This article was published at an earlier date and has been updated with new information.