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 stable cash flow without active management or daily involvement.
Success in dividend investing depends on identifying companies that offer attractive returns and have 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 on the high-yield landscape, each with yields above 5% and intriguing long-term prospects. Let’s take a look at why these dividend powers deserve more attention from income-oriented investors.
Verizon: a telecom titan with juicy returns
Verizon Communications (NYSE: VZ) makes a compelling case for income-oriented investors in light of its hefty 6.07% dividend yield. The telecom giant boasts an 18-year streak of consecutive dividend increases, and recently increased its quarterly payout to 67.75 cents per share, despite its 100% payout ratio.
Verizon’s strength comes from its dominant position in the U.S. wireless market, which holds about 40% of the postpaid phone market share. This scale allows Verizon to generate industry-leading margins and returns on capital, which supports its generous dividend payments.
The company’s shares are up more than 18% year to date, likely benefiting from investor rotation into select high-yield dividend stocks ahead of expected rate cuts. While Verizon faces intense 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) and free cash flow generation reinforces its commitment to maintaining an attractive dividend. Because shares trade at just 9.5 times forward earnings, the stock also offers a significant margin of safety in the event of a market-wide pullback.
This combination of high returns, growth potential and attractive valuation makes Verizon an attractive passive income source.
Pfizer: A pharmaceutical giant with an attractive return
Pfizer (NYSE:PFE) offers passive income investors a substantial dividend yield of 5.69%. The pharmaceutical powerhouse also has an extensive portfolio of more than 350 marketed drugs and 113 clinical trial candidates, with a global presence in more than 200 countries.
Still, recent challenges, mainly due to declining franchise sales due to COVID-19, have hit Pfizer stock hard. The drugmaker’s stock price is down more than 50% from its three-year peak, potentially creating an attractive value opportunity. Currently, Pfizer trades at just 9.6 times expected 2026 earnings.
While Pfizer’s 15-year streak of consecutive dividend increases is impressive, its current payout ratio of 436% raises some eyebrows when it comes to sustainability. Management addressed this issue head-on, reaffirming its commitment to a top dividend and implementing a $4 billion cost-cutting initiative to strengthen the balance sheet during the post-COVID transition.
Looking ahead, Pfizer’s future depends largely on the fate of its clinical pipeline, especially its slate of potentially successful cancer treatments. Success in this fast-growing market segment could significantly improve the company’s financial prospects and help push its payout ratio closer to the historical average of 50%.
Pfizer’s status as an economically insensitive stock, combined with its high yield and promising pipeline, makes it an intriguing option for those looking for steady income and long-term portfolio stability. Furthermore, the drugmaker’s floor valuation should provide a significant margin of safety in the event of a market-wide correction.
All told, Pfizer emerges as a top candidate for a long-term passive income portfolio.
Should you invest €1,000 in Pfizer now?
Consider the following before buying shares in Pfizer:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Pfizer wasn’t one of them. The ten stocks that made the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $740,704!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns September 23, 2024
George Budwell has positions in Pfizer. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
2 High-Yield Dividend Stocks That Can Provide a Lifetime of Passive Income Originally published by The Motley Fool
Leave a Comment