Looking at my portfolio over the last few days, I have noticed that I only have one high-yield stock currently in the stable. That one stock would be my position with Altria (MO). I consider a high yield anything over 5.5%, especially in this low-rate environment. I have a long watch list that I monitor and update daily. Being a dividend growth investor, there are relatively few stocks on this watch list that yield over 5.5% currently. I thought I would talk today about a trio of stocks that I am currently interested in that do have a high entry yield with dividend growth.
I have been interested in Telefonica for some time. They are a global telecom company stretching multiple continents. They have large wireless and fixed-line businesses in Spain and the Czech Republic. They also have large positions in the U.K. and Germany. In addition, they receive a large number of revenue from the telecom businesses in Latin America. If you’re looking for international exposure, this is it. They have a large current entry yield at 6.8%. They have grown dividends for 8 years and have a dividend growth rate of 20% over the past 5 years. Very healthy. It currently trades at an attractive 7.98 times earnings. The payout ratio is difficult to figure due to the exchange rates and semi-annual payments with the ADR, but calculating using the last known dividend in U.S. Dollars, the payout ratio is just north of 56%. This stock is definitely on my radar.
AT&T has been on my radar for quite a while. I think they are a well-run company in a challenging U.S. telecom market. The only thing currently keeping me on the sidelines from initiating a position is the current possible acquisition of T-Mobile. I’m not skilled enough to fairly value this transaction, being as large as it is. I’m not quite sure how this is going to turn out, in terms of shareholder value. I do like the fact that it will make AT&T the largest wireless provider in the U.S., but I’m not sure about shareholder dilution. I do like the high current entry yield at 6.03%. It has had a bit of a run-up over the past month while I’ve been on the sidelines with analysis paralysis, gaining over 2.2% over said time period. The 27 years of dividend growth is obviously very attractive, but you have to be o.k. with assuming low forward growth in this challenging market. The stock’s valuation is pricing that assumption of low growth in, currently trading at an attractive level of 8.87 times earnings. It has a well-covered dividend, with a payout ratio of 53%. I’m currently watching for weakness before initiating a position.
Although I currently have a position with Altria, it is a small position. I’m considering adding to my position, in order to increase my overall portfolio’s yield. This company is not for the faint of heart, nor a person who has intense personal objections to smoking. I currently possess neither, so I have no problems investing in sin stocks. I actually favor it’s brother Phillip Morris International for the international exposure and growth, but Altria is a safe pick for a challenging U.S. market that faces little competition and virtually no chance for new competitors to enter the marketplace. The current ban on advertising tobacco products locks Altria into a position of dominance. It’s a cash machine and has pricing power unlike almost any business I can think of. I honestly don’t believe that someone will immediately quit smoking when they see their pack of Marlboro is 10 cents higher today than it was yesterday. They will pay that extra 10 cents. And that’s why I love Altria. They have a current entry yield of 5.86%. I don’t think it is a particular value at it’s current price; it is trading at a price/earnings ratio of 13.86, which is well in line with some of it’s major competitors. It is a fair deal for a dividend powerhouse of this caliber. It has been raising dividends for 42 years, which is very impressive. I only wish I would have gotten into MO a few years ago, before it spun off Kraft and PM. This is a company that rewards it’s shareholders. It does have a high payout ratio north of 80%, but they have stated many times that it’s well within their goals of returning most of their earnings back to the shareholders. They also have a large stake in SABMiller, which many analysts believe is undervalued on the books. I’m very likely to increase my position on weakness.
I am long MO.
Thanks for reading.