Passive income is a powerful tool for building long-term wealth and securing financial freedom. High-yield dividend stocks offer investors an effective way to generate steady cash flow without active management or daily involvement.
Success in dividend investing hinges on identifying companies that offer attractive yields and possess the financial strength to maintain and potentially grow their payouts over time. These rare finds can become cornerstone investments, providing reliable income streams for decades.
Two stocks currently shine in the high-yield landscape, each offering yields above 5% with intriguing long-term prospects. Let's examine why these dividend powerhouses merit closer attention from income-focused investors.
Verizon: A telecom titan with a juicy yield
Verizon Communications (NYSE: VZ) presents a compelling case for income-focused investors in light of its hefty 6.07% dividend yield. The telecom giant boasts an 18-year streak of consecutive-dividend increases, recently raising its quarterly payout to 67.75 cents per share despite its 100% payout ratio.
Verizon's strength stems from its dominant U.S. wireless market position, controlling approximately 40% of the postpaid phone market share. This scale allows Verizon to generate industry-leading margins and returns on capital, underpinning its generous dividend payments.
The company's stock has climbed over 18% year to date, likely benefiting from investor rotation into select high-yield dividend stocks ahead of anticipated interest rate cuts. While Verizon faces stiff competition and challenges in its fixed-line business, its extensive fiber-network assets and 5G technology offer growth potential.
Verizon's focus on wireless service-revenue growth, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) expansion, and free-cash-flow generation reinforces its commitment to maintaining an attractive dividend. With shares trading at just 9.5 times forward earnings, the stock also offers a substantial margin of safety in the event of a marketwide pullback.
This blend of high-yield, growth potential, and attractive valuation makes Verizon an attractive passive-income play.
Pfizer: A pharmaceutical giant with an attractive yield
Pfizer (NYSE: PFE) offers passive income investors a substantial 5.69% dividend yield. The pharmaceutical powerhouse also sports a vast portfolio of over 350 marketed medicines and 113 clinical-trial candidates, with a global footprint spanning more than 200 countries.
Still, recent challenges, primarily stemming from declining COVID-19 franchise sales, have hit Pfizer's stock hard. The drugmaker's share price has plummeted by over 50% from its three-year peak, potentially creating an attractive value opportunity. Currently, Pfizer trades at just 9.6 times projected 2026 earnings.
While Pfizer's 15-year streak of consecutive-dividend increases is impressive, the current 436% payout ratio raises eyebrows regarding sustainability. Management has tackled this concern head-on, reaffirming its commitment to a top-tier dividend and implementing a $4 billion cost-saving initiative to shore up its balance sheet during the post-COVID transition.
Looking ahead, Pfizer's future largely depends on the fate of its clinical pipeline, especially its slate of potential blockbuster cancer treatments. Success in this high-growth market segment could significantly boost the company's financial outlook and help bring the payout ratio closer to its historical 50% average.
Pfizer's status as an economically insensitive stock, coupled with its high yield and promising pipeline, makes it an intriguing option for those seeking steady income and long-term portfolio stability. Moreover, the drugmaker's rock-bottom valuation should provide a significant margin of safety in the event of a marketwide correction.
All told, Pfizer screens as a top candidate for a long-term-oriented passive income portfolio.
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George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
2 High-Yield Dividend Stocks That Can Deliver a Lifetime of Passive Income was originally published by The Motley Fool