The investment landscape has changed dramatically in the last year or so. The unprecedented era of near-zero interest rates is now over. With the nearly risk-free 10-year U.S. Treasury note paying a coupon rate of 3.875% and many certificates of deposit offering more than 5%, investors are demanding more income from their stock holdings. There are plenty of dividend stocks to choose from, but far fewer boast yields that compete with Treasurys.
Unlike government bonds, equities offer both dividend income and the potential for capital gains. While not all of these stocks have made big gains in this year’s turbulent market, they offer relative stability combined with healthy yields.
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Here are seven of the best high-yield dividend stocks to buy, all of which have a trailing-12-month yield of more than 6% and earn five stars from Morningstar analysts:
| Stock | Dividend yield (TTM) as of Oct. 5 |
| Verizon Communications Inc. (ticker: VZ) | 8.2% |
| Volkswagen AG ADR (VWAPY) | 8.5% |
| Mercedes-Benz Group AG (MBGAF) | 8.4% |
| KeyCorp (KEY) | 8% |
| Lloyds Banking Group PLC (LYG) | 6.2% |
| VF Corp. (VFC) | 8.5% |
| BASF SE (BASFY) | 8.6% |
Verizon Communications Inc. (VZ)
The largest of the high-dividend stocks to buy on this list, the $129 billion Verizon is a telecom giant in the oligopolistic telecom sector. With only two true competitors and high barriers to entry, Verizon enjoys all the benefits of a utility, as mobile data and voice connection is essential for modern-day life and commerce.
“Verizon Communications is primarily focused on the wireless business, where it has taken steps to ensure it remains well positioned, building fiber deeper into major metro areas, acquiring a huge chunk of spectrum and ramping up spending to put that spectrum to use,” writes Michael Hodel, director of Morningstar.
While he believes Verizon will “deliver consistent results,” the company’s growth is likely to be “very modest” in the face of comparable services and prices offered by VZ’s top rivals, AT&T Inc. (T) and T-Mobile US Inc. (TMUS). Currently, VZ is the largest postpaid phone service provider in the U.S., with about 40% of the total market share — about one-third more than either AT&T or T-Mobile.
“Leading scale enables Verizon to generate the highest margins and returns on capital in the industry, despite heavy investment,” Hodel writes. “Also, the merger of T-Mobile and Sprint improved the industry’s structure, leaving three players with little incentive to price irrationally in search of short-term market share gains.”
Trailing-12-month (TTM) dividend yield: 8.2%.
[READ: 9 Best-Blue Chip Dividend Stocks]
Volkswagen AG ADR (VWAPY)
If you want to bet on the future of electric vehicles, Volkswagen could be a solid choice.
“In our view, Volkswagen is successfully executing a global automotive strategy and has one of the most aggressive plans to switch to battery electric vehicles from internal combustion powertrains,” writes Morningstar senior equity analyst Richard Hilgert. Given this, he considers the stock undervalued at only $11.24 as of Oct. 5, relative to its fair value of $37.
Volkswagen also benefits from a broad set of brands — from the ultra-luxury brand Lamborghini to mass-market brands like VW, Skoda and Seat — that allow it to serve multiple consumer segments.
“As one of the world’s leading volume producers, Volkswagen’s economies of scale from common platforms across a number of models enable cost savings unattainable by smaller competitors,” Hilgert writes.
Dividend yield (TTM): 8.5%.
Mercedes-Benz Group AG (MBGAF)
Another automotive play for dividend investors may be Mercedes-Benz. Morningstar analysts recently upgraded MBGAF’s economic moat rating “to narrow from none based on the strength of the brand and the firm’s intellectual property, both within the intangible asset moat source,” Hilgert writes. This also earned it a higher fair market value of $123, which represents 80.3% potential upside from its Oct. 5 closing price.
“While Mercedes does not have Formula One notoriety like Ferrari, the firm uses the venue to develop intellectual property for its road cars,” Hilgert writes. “We think the brand’s strength is evident in its position in the top 10 of all (not just automotive) global brands, according to Interbrand.”
The company also won four PwC AutomotiveInnovations awards in 2023: Most Innovative Premium Brand, Most Innovative Model (EQE BEV), Most Innovative Premium Brand-Electric Mobility, and Most Innovative Premium Brand-Interface and Connectivity.
Dividend yield (TTM): 8.4%.
KeyCorp (KEY)
You may be wary of investing in a regional bank in the U.S. after the 2023 banking crisis that saw three small and midsize banks fail. However, there’s good reason to give this Ohio-based midsize bank a look.
While the financial crisis hurt KeyCorp, the company has since returned to “healthy profitability” thanks to “increasing credit quality and declining credit-related costs,” writes Morningstar strategist Eric Compton.
The company had revenues of more than $7 billion in 2021 and 2022. And with a price-to-earnings ratio of 7, investors are getting a good deal on these earnings.
The stock is trading at half its value now, according to Morningstar: $10.30 as of Oct. 5 versus a fair market value of $20.
Dividend yield (TTM): 8%.
[READ: 7 Best Energy Dividend Stocks to Buy]
Lloyds Banking Group PLC (LYG)
Lloyds is a U.K.-based retail and commercial banking firm. With the recent turmoil in U.S. banks, American investors may appreciate Lloyds’ lower risk allocation. It shed hundreds of billions of dollars in runoff and risk-weighted assets during its 2011 restructuring, which “significantly reduced its dependence on wholesale funding,” writes Morningstar equity analyst Niklas Kammer. “Today, Lloyds operates one of the strongest retail franchises in the United Kingdom.”
While mortgages represent about two-thirds of Lloyds’ loans to customers, the firm shifted its focus to other markets, including financial planning, credit-card loans, and loans to small and midsize businesses, as competition heated up in mortgages.
“This should allow Lloyds to offer a stronger value proposition to its clients as open banking initiatives take hold,” Kammer writes.
Dividend yield (TTM): 6.2%.
VF Corp. (VFC)
You may know VF Corp. better than you think. The Colorado-based apparel producer is the company behind major brands such as Vans, The North Face and Timberland, which account for about 80% of its sales.
Despite lower sales and operating margin in 2023, Morningstar senior equity analyst David Swartz believes VF “will grow faster than most competitors in the long run and maintain its competitive edge.”
Rather than developing its own brands, VF tends to acquire companies it sees potential in and develop them. “VF targets acquisitions that can generate a 15% ROIC in three years and reach at least $1 billion in annual sales over time,” Swartz writes.
Its latest acquisitions, Williamson-Dickie (the parent of Dickies) and Supreme, have “experienced erratic results due to the pandemic and other reasons,” but Swartz says they have growth potential.
VF is also not afraid to drop brands that don’t serve its portfolio. “The active management of its brand portfolio allows VF to replace weak, no-moat brands with others that have moat potential, allowing it to focus its marketing, distribution and innovation efforts on its highest-return opportunities,” Swartz says.
Dividend yield (TTM): 8.5%.
BASF SE (BASFY)
BASF is a chemical producer striving to promote a more sustainable future with environmental protections and social responsibility. And yet the firm “is subject to a range of environmental, social and governance, or ESG, issues that could pose challenges moving forward,” writes Morningstar analyst Katherine Olexa. Morningstar’s sustainability research arm found that BASF manufactures at least 44 substances that pose significant human health hazards.
“Improper management of its products and services could leave the firm liable for associated damages in the event of an incident which, at times, may involve hefty fines,” Olexa writes, while an outright ban could force the company to reformulate its existing products or chemicals.
Despite these concerns, Olexa is bullish on BASFY’s long-term prospects, noting the company maintains a top-three market position in more than two-thirds of its businesses. It plans to diversify geographically, adding a site in Zhanjiang, China, that Olexa believes will “drive profitable growth for the firm, while further regional diversification will mitigate profit volatility over time.”
Dividend yield (TTM): 8.6%.
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7 High-Yield Dividend Stocks to Buy originally appeared on usnews.com
Update 10/06/23: This story was previously published at an earlier date and has been updated with new information.
