5 High Yield Dividend Stocks to Consider
Dividend stocks are stocks which distribute a portion of the company’s earnings to shareholders, usually in the form of cash, but also, sometimes, in the form of additional stock.
Dividend stocks are often overlooked by less experienced investors, but holding shares which pay regular dividends in your portfolio can be very rewarding as a source of additional income. So, what are the best dividend stocks to watch in 2022? And which stocks are high dividend paying stocks? In this article, we highlight 5 high yield dividend stocks for investors to consider adding to their portfolios in 2022.
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What Is a Dividend Yield and How Is it Calculated?
When it comes to picking dividend stocks, one of the most important indicators to consider is its dividend yield. But what is a dividend yield and how is it calculated?
A dividend yield expresses how much a dividend stock pays in comparison to its current share price and is expressed as a percentage. The formula for calculating the dividend yield is as follows:
(Dividend per Share / Current Share Price) x 100
So, for example, if a company pays its shareholders a cash dividend of $0.50 per share and the current share price is $20, its dividend yield would equate to 2.5%. This means that for every $100 you invested in this stock, at its current dividend yield, you could expect an annual dividend payment of $2.50.
Now that we know what a dividend yield is, let’s take a look at our list of high yield dividend stocks to watch.
Dividend Yield as of 14 March 2022: 5.3%
The first of our high yield dividend stocks to watch is US tech giant IBM, who has fallen out of favour with investors in recent years.
After hitting an all-time high in 2013, the IBM share price has fallen more than 40% whereas, over the same time period, the broader S&P 500 has gained 172% (not accounting for dividend distributions).
However, throughout this period of decline in the stock market, IBM has paid a reliable dividend which has doubled over the same time period. In fact, the company has a history of increasing its dividend every year since 1996 and has been consistently paying dividends since 1916!
In November 2021, IBM completed a business shift, which sees IBM them on cloud computing and artificial intelligence with its legacy business of Managed Infrastructure Services spun off into a new public company called Kyndryl.
This spin off could bode well for IBM’s future prospects, as it has retained the more profitable and higher-margin aspects of their business whilst passing the historically less profitable operations to Kyndryl.
Dividend Yield as of 14 March 2022: 6%
US company Kinder Morgan operates in the energy sector, specialising in owning and controlling oil and gas pipelines. Its reliable business model combined with its consistent and generous history of dividend payments earn it a place on our list of high yield dividend stocks.
Because of Kinder Morgan’s business practice of providing long-term fee-based contracts to its clients, its profitability is not necessarily tied to oil and gas prices.
This means that the current surge in energy prices has not translated to record profits for the company. However, naturally, this cuts both ways. In 2020, when oil prices collapsed, the long-term contracts which Kinder Morgan operated meant that the downside caused to its business was significantly limited when compared with other companies which operate in the industry.
When it comes to picking high yield dividend stocks, it is exactly this kind of reliable, predictable, and perhaps even “boring”, stream of income which makes a company attractive.
Dividend Yield as of 14 March 2022: 7.1%
For investors who strictly follow ESG principles when investing our next pick may not appeal. However, it happens to be a fact that tobacco companies account for some of the most reliable high yield dividend stocks available and many have a long history of providing good shareholder value.
Altria Group is one such tobacco stock, one of the largest tobacco companies in the US and owner of the famous Marlboro brand, which accounted for 42.7% of the US market in 2021.
Although the widely publicised negative health effects of smoking have led to a decline in demand over the last several decades, Altria has been somewhat able to offset this through price increases, which ensure profits and cash flows remain high.
Furthermore, as with many other tobacco companies, Altria has diversified its business to lessen its reliance on combustible tobacco products. Amongst other interests, Altria owns a 35% stake in JUUL, who are a leading US electronic cigarette company.
As for its dividend, Altria has an incredible historical record of dividend payments, having increased its dividend every year for 52 consecutive years, earning it the title of dividend king.
Dividend Yield as of 14 March 2022: 8.8%
BHP is an Australian mining and petroleum company which operates in various countries across the world.
Thanks to high commodity prices, BHP have performed strongly over the last couple of years, and, consequently, shareholders have been rewarded by sizeable dividends.
Over the next year, BHP find themselves positioned to continue to perform well. Their oil and gas operations in the US and Trinidad & Tobago are likely to flourish, given the current high prices and excess of demand.
Moreover, copper and iron ore, which between them accounted for 83% of revenue in the year ended 30 June 2021, may remain in high demand over the next year, as the global economy continues to recover from the coronavirus pandemic.
Looking specifically at copper, this metal is a key material in the manufacture of electric vehicles, meaning that its demand could soar in the future as the world continues to move towards decarbonisation.
Whilst this all sounds very positive, investors should be aware that commodity prices can be incredibly volatile; one need not look further than oil prices over the past 12 months as evidence of this. Therefore, anybody considering investing in BHP, or other oil and mining stocks, needs to keep themselves thoroughly appraised of the price outlook of the relevant commodities.
However, for 2022 at least, commodity prices look likely to remain elevated, which is why this high yield dividend stock has made our list.
Legal and General
Dividend Yield as of 14 March 2022: 7%
The last entry on our list of high yield dividend stocks is Legal & General (L&G), which has a good record of increasing its annual dividend. Since the market crash in 2008, L&G has increased its dividend payment every year, with the exception of 2020, when it was held at the same level as 2019 due to the downturn caused by the pandemic.
L&G is an insurance and asset management company based in the UK, most well-known for its insurance and pension services.
In 2021, 67% of the company’s operating profit was generated from its Pension Risk Transfer (PRT) business, with the vast proportion of this business generated in the UK market. This sector has benefitted from an ageing population in the UK, and is likely to continue to do so.
In 2021, L&G signed £5.3 billion of new business premiums in UK PRT, and they anticipate writing between £40 billion and £50 billion of new UK PRT over the next five years as this market continues to grow.
Therefore, as well as being an historically reliable high dividend paying stock, L&G may offer investors capital growth over the coming years. However, with the majority of L&G’s business generated in the UK, the company’s performance is strongly linked to the well-being of the UK economy, which is something investors will need to consider.
Furthermore, insurance and pension companies invest much of the capital they generate through premiums. Rising inflation and the prospect of further interest rate hikes could have a negative impact on some of these investments.
High Dividend Yield Stocks – More to Consider
In this article, we have looked at 5 high dividend yield stocks for investors to consider, and have primarily focussed on this metric.
However, it is important to understand that when investing for income, the dividend yield is just one of many factors to consider.
A common, and natural, misconception is that the higher the dividend yield the better. But this is not necessarily the case. A company may have a high dividend yield in the present, but is it sustainable going forward? How is it generating the income to make this dividend payment, and will it be able to continue to rely on this income in the future? Is there a high risk that you will lose your invested capital?
For example, the highest yielding stock on this list is BHP, with a dividend yield at the time of writing of 8.8%. If we were solely interested in finding the highest yielding dividend stock, we would not have to look particularly had to find one higher than this.
Another mining stock, Polymetal International, has a massive current dividend yield of almost 45%. However, the only reason this stock has such a high dividend yield is because its share price has completely collapsed over the last month. In other words, make sure you look beyond high yield dividend stocks and dig deeper into the company before risking your hard earned cash.
Dividend Payout Ratio
One other important metric to consider when picking dividend stocks is the dividend payout ratio. This expresses the dividend as a percentage of a company’s earnings. For example, if a company paid a dividend of £0.30 per share and had Earnings per Share (EPS) of £1, the dividend payout ratio would equal 30%.
In an ideal scenario, an investor would be looking for a dividend payout ratio of less than 50%, with the remaining earnings being reinvested into the company to fuel future growth and, therefore, future dividends.
Invest in Dividend Stocks with Admirals
With an Invest.MT5 account from Admirals, you can buy shares in all the high yield dividend stocks looked at in this article and collect any future dividend payments.
Besides the stocks looked at above, you will have a choice of over 4,300 other shares and more than 200 Exchange-Traded Funds (ETFs) from 15 of the largest stock exchanges in the world! Other benefits of an Invest.MT5 account include:
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