If you want to benefit from a dividend stream that will allow you to retire comfortably, there are two basic options.
You can buy stocks of companies that can grow their distributions quickly, but these stocks tend to offer low initial returns. The other option is to aim for high returns from the start. Unfortunately, stocks generally don’t offer high returns unless investors are nervous about the underlying business and its ability to grow earnings.
These days, Altria Group (NYSE:MO) And AT&T (NYSE:T) stand out because they offer high initial returns, and there’s a good chance they can steadily increase their payouts over the long term.
Altria Group
Shares of Altria Group, the tobacco giant that sells Marlboro in the United States, are down about 23% since their 2022 peak. At its beaten-down price, the stock offers a staggering 9% yield.
Altria Group has increased its dividend payout for 54 consecutive years. Despite a tremendous track record, the stock market does not expect future payout increases as sales of combustible cigarettes are declining faster than usual.
In 2023, Marlboro’s share of cigarette sales remained stable at around 42% of the market. The century-long shift away from combustible cigarettes, however, caused the volume of cigarettes sold to fall by 9.9% last year.
Many former smokers purchase flavored vaping products that Altria cannot sell due to a ban enacted by the Food and Drug Administration (FDA) years ago. Altria’s losses in the illicit disposable vaporizer market will likely decline in 2024 due to increasing enforcement of the FDA’s flavor ban and sales of NJOY. Altria Group acquired NJOY in 2023, and it is one of three e-cigarette systems approved for sale by the FDA.
Competition from a fierce illicit market made last year a particularly rotten year for the Altria group. Despite the challenges, the company grew its adjusted earnings per share by 2.3% in 2023. The ongoing launch of NJOY and increasing enforcement of the FDA’s flavor ban may now make it a little easier to increase sales. profits and payment of dividends.
AT&T
AT&T stock is down about 29% from its peak in early 2021. The telecommunications service provider has been under severe pressure since divesting its unpredictable media assets and cutting its dividend accordingly in 2022. At recent prices, the stock offers a yield of 6.3%.
AT&T shares have taken a beating in part because old landline and Internet subscribers are leaving in droves. It was also the last of its peers to launch a fixed wireless Internet service using its 5G infrastructure.
Landline sales are down, but wireless revenue generated by AT&T’s 5G infrastructure is offsetting the losses. In addition, fiber Internet sales are constantly growing. Last year marked the sixth consecutive time that AT&T added more than 1 million new fiber-optic Internet subscribers. Continued growth of its fiber product and the rollout of a fixed wireless service drove broadband sales up 8% last year.
On AT&T’s results, free movement of capital grew to $16.8 billion in 2023 from $14.1 billion in 2022. Management expects the positive trend in profitability to continue. Its forecast range for free cash flow this year is between $17 billion and $18 billion.
AT&T probably won’t have the fastest-growing dividend in your portfolio, but its position in the three-way U.S. telecommunications oligopoly gives it an excellent chance to continue growing the dividend for many years future. Adding a few stocks to a portfolio and holding them for the long term seems like a smart move for most investors.
Should you invest $1,000 in Altria Group right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.
2 Beaten Dividend Stocks With Yields Above 6% to Buy Now and Hold Forever was originally published by The Motley Fool
