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 4.5% 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.
[Sign up for stock news with our Invested newsletter.]
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.
Here are seven of the best high-yield dividend stocks to buy, all of which have a trailing-12-month yields of at least 6% and earn five stars from Morningstar analysts:
| Stock | Dividend yield* |
| Mercedes-Benz Group AG (ticker: OTC: MBGAF) | 8.5% |
| Kohl’s Corp. (KSS) | 8.7% |
| Volkswagen AG ADR (OTC: VWAPY) | 7.8% |
| Sabra Health Care REIT Inc. (SBRA) | 8.5% |
| Western Union Co. (WU) | 7.9% |
| V.F. Corp. (VFC) | 7.7% |
| Verizon Communications Inc. (VZ) | 6.9% |
*Trailing-12-month yield as of Dec. 6 close.
Mercedes-Benz Group AG (OTC: MBGAF)
“The highly regarded Mercedes-Benz brand is one of the top premium and luxury automobile names in the world,” writes Morningstar Senior Equity Analyst Richard Hilgert. “The firm is also a European leader in commercial vans.”
He gives Mercedes-Benz a narrow moat despite being in a highly competitive industry thanks to the strength of its brand and its intellectual property.
“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 from the sale of premium- and luxury-priced vehicles is evident in its position in the top 10 of all 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: 8.5%
Kohl’s Corp. (KSS)
Since opening its doors in 1962, Kohl’s has grown to become a nationwide retailer with stores in nearly every state. It serves more than 65 million customers and generated more than $18 billion in revenue last year.
That said, the third fiscal quarter of 2023 was a disappointing one for the retailer, with sales down more than 5%. Profitability was higher than expected, however, according to Morningstar Senior Equity Analyst David Swartz, who remains optimistic about Kohl’s future. Morningstar maintained its $50 fair value estimate for the company, which leaves shares very undervalued after the 10% drop caused by its lackluster earnings report in November.
Overall, Swartz is more bearish than bullish on Kohl’s future as e-commerce, discount and specialty retailers eat into its customer base. However, the company needn’t be completely written off.
“Kohl’s has strengths, including its reputation for reasonable prices and more than 30 million loyalty members,” Swartz writes. “Also, unlike some peers, it does not have large numbers of stores in struggling malls.”
Kohl’s also has an impressive dividend yield thanks to consistent quarterly payouts dating back to 2011. This could be the perfect time to snatch up this high-dividend stock at a 54% discount to its Morningstar fair market value.
Dividend yield: 8.8%
Volkswagen AG ADR (OTC: 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,” Hilgert writes. Given this, he considers the stock steeply undervalued at only $12.20 as of Dec. 6, 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: 7.8%
Sabra Health Care REIT Inc. (SBRA)
When seeking high yields, a common place to look is the real estate sector. Real estate investment trusts, or REITs, like SBRA are required to pay out at least 90% of their taxable income to shareholders each year. This can translate into reliable returns for investors.
SBRA owns and invests in health care real estate. As of September, the portfolio includes 377 properties, mostly in skilled nursing and transitional care facilities, but also senior housing, behavioral health and specialty hospitals across the U.S. If you think the need for health care facilities is not going anywhere, investing in a health care REIT like SBRA could be a smart way to gain exposure to this sector while also getting a nice payout.
SBRA pays a quarterly dividend. These are largely nonqualified dividends, which means the payouts aren’t taxed at the lower capital gains tax rate. Instead, they’re taxed at ordinary income rates. So if you do buy this REIT, consider holding it in a tax-advantaged account such as an individual retirement account (IRA) to save money on taxes.
Dividend yield: 8.5%
Western Union Co. (WU)
The Western Union Co. is a financial services company that facilitates money transfers around the world, making payouts into billions of bank accounts and wallets. It serves millions of retail and digital customers each day across more than 200 countries and territories.
Morningstar Senior Equity Analyst Brett Horn is encouraged by the company’s direction following a positive third-quarter earnings report. Revenue grew 1% year over year, exceeding company expectations and leading to an improved 2023 full-year revenue and earnings per share estimate.
“Western Union is the largest player, by far, in an industry where size confers significant benefits,” Horn writes. “… Western Union generates almost three times as much revenue as its closest competitor, giving it a marked cost advantage over its rivals, and its operating margins historically have been significantly higher than its peers.”
He gives the company a fair value estimate of $17, which it is currently more than 30% below. It has paid a quarterly dividend since 2010.
Dividend yield: 7.9%
[Best Tech Stocks to Buy for 2024]
V.F. 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, 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: 7.8%
Verizon Communications Inc. (VZ)
The largest of the high-dividend stocks to buy on this list, the over $161 billion Verizon, is a 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 Morningstar Director Michael Hodel.
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.”
Dividend yield: 6.8%
More from U.S. News
What Tax-Loss Harvesting Is and How It Can Boost Returns
7 High-Yield Covered Call ETFs Income Investors Will Love
7 of the Best 5-Star ETFs to Buy
7 High-Yield Dividend Stocks to Buy originally appeared on usnews.com
Update 12/07/23: This story was previously published at an earlier date and has been updated with new information.
