Stocks with high dividend yields are attracting my attention more than ever these days. But dividends aren't my only consideration. I also focus on solid underlying businesses and growth prospects. There are plenty of good investment alternatives on the market, but a few especially stand out.
Here are my three top high-yield dividend stocks to buy in September.
1. Dominion Energy
Utility stocks might seem boring to many investors. However, boring is beautiful in some cases. I think that's the case with Dominion Energy (NYSE: D).
Dominion's stock chart over the last two months could be described as beautiful. The company's share price has soared since early July. One big catalyst: Investors' anticipation of interest rate cuts. I fully expect Dominion Energy stock will continue its momentum if the Federal Reserve reduces rates. And based on Fed Chair Jerome Powell's recent remarks, those rate cuts seem increasingly likely.
Lower interest rates cause bond yields to fall, making bonds less attractive to income investors. This, in turn, makes Dominion more attractive with its juicy forward dividend yield of 4.8%. Lower rates also make it cheaper for Dominion to finance its borrowing.
The best thing about Dominion Energy, though, is its rock-solid business. The company provides electricity or natural gas to more than 4.5 million customers in 13 states. Arguably the most important of those markets is Dominion's home state of Virginia. The northern part of the state has especially become a magnet for data centers, which presents a key growth opportunity for Dominion.
2. Realty Income
I truly believe Realty Income (NYSE: O) ranks among the best dividend stocks around. Exhibit A is the company's forward dividend yield of 5.1%. Exhibit B is that Realty Income pays its dividends monthly rather than quarterly.
However, the most impressive thing about Realty Income's dividend is its long-term growth. The real estate investment trust (REIT) has increased its dividend payout for 29 consecutive years by a compound annual growth rate of 4.3%.
Lower interest rates should benefit Realty Income for the same reasons they help Dominion Energy. Income investors who shift from bonds should find the REIT's high dividend yield appealing. Realty Income borrows heavily to fund buying new properties; lower rates will make it less expensive for the company to expand.
Also like Dominion Energy, data centers are a growth opportunity for Realty Income. In addition, the REIT should be able to increase its presence in Europe, which has a larger total addressable public net lease market than the U.S.
3. United Parcel Service
In some ways, United Parcel Service (NYSE: UPS) might seem to be the kind of dividend stock you'd want to avoid. The stock has declined quite a bit this year. Revenue and earnings fell year over year in the second quarter. UPS' biggest customer, Amazon, is expanding its internal logistics capabilities.
However, I see a major rebound on the way for UPS. The package delivery giant expects improved performance in the second half of the year. The anniversary of the first year of its Teamsters contract was on Aug. 1. That's good news, because most of the higher costs associated with this contract were in year one. The company is focusing on expanding its higher-margin opportunities in healthcare logistics and serving small-to-medium-sized businesses.
UPS' management appears to be confident that its situation is improving, too. The company is restarting its stock buyback program. It plans to repurchase around $500 million of shares this year and increase the amount to roughly $1 billion per year going forward.
Then there's the dividend. UPS' forward dividend yield is a hefty 5.1%. The ongoing demand for package delivery should enable the company to generate plenty of free cash flow to extend its streak of 15 consecutive dividend increases.
Should you invest $1,000 in Dominion Energy right now?
Before you buy stock in Dominion Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dominion Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $731,449!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keith Speights has positions in Amazon, Dominion Energy, and United Parcel Service. The Motley Fool has positions in and recommends Amazon and Realty Income. The Motley Fool recommends Dominion Energy and United Parcel Service. The Motley Fool has a disclosure policy.
My 3 Top High-Yield Dividend Stocks to Buy in September was originally published by The Motley Fool