4 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. These type of stocks are sometimes 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 2023? In this article, we highlight 4 high yield dividend stocks for investors to consider adding to their portfolios in 2023.
Table of Contents
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.
High Yield Dividend Stocks to Consider
In the following sections, we will examine 4 high yield dividend stocks for investors to consider adding to their portfolios in 2023.
We will focus primarily on dividend yields; 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 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?
In other words, make sure you look beyond high dividend paying stocks and dig deeper into the company before risking your hard earned cash.
|Legal and General|
|Dividend Yield as of 26 January 2023: 6.25%|
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 last year’s surge in energy prices did not translate to the record profits many other oil and gas companies enjoyed. However, naturally, this cuts both ways. After racing to multi-year highs, wholesale energy prices have been following a downward trajectory since mid-way through 2022, although they remain at high historical levels.
As the future outlook for energy prices remains less than certain, the long-term contracts which Kinder Morgan operate mean that any downside to their business from a potential fall in oil and gas prices would be limited.
When it comes to picking high yield dividend stocks, especially in the current economic climate, it is exactly this kind of reliable, predictable, and perhaps even “boring”, stream of income which makes a company attractive.
|Dividend Yield as of 26 January 2023: 8.25%|
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 dividend paying stocks available, with many having a long history of providing great 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. In the first six months of 2022, the company accounted for 48.2% of the US cigarette market.
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 record of dividend payments, having increased its payout every year for 53 consecutive years, earning it the coveted title of dividend king.
|Dividend Yield as of 26 January 2023: 6.46%|
Sometimes, a high yield dividend stock can signal alarm bells to experienced investors. Can the company sustain such a high dividend? In the case of US telecommunications giant Verizon, the evidence suggests that it can.
Unfortunately, for existing shareholders, the reason behind Verizon’s high dividend yield is mainly its poor performance in the stock market recently, which has seen share price drop almost 25% since the beginning of 2022. But does this slump provide new investors with an opportunity to pick up a reliable high yielding dividend stock?
Despite a poor 12 months in the stock market, Verizon’s fundamentals appeared to remain relatively robust. Whilst total operating revenue increased 2.4% in 2022, an increase in operating expenses led to net income dropping 3.8% year on year.
Nevertheless, this reported net income of $21.7 billion provided more than 2 times cover for the company’s total dividend payments of $10.8 billion, suggesting that Verizon’s dividend payout should remain safe for the time being.
Legal and General
|Dividend Yield as of 26 January 2023: 7.23%|
On the other side of the Atlantic, FTSE 100 constituent Legal and General is one of the top UK high yield dividend stocks. Its impressive yield of 7.23% is more than double the average of the FTSE 100.
Legal & General (L&G) is an insurance and asset management company based in the UK, most well-known for its insurance and pension services, and has a solid 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.
The company performed well in the first half of 2022, with operating profit rising 8% year on year to £1.2 billion. Naturally, this doesn’t include the chaos wrought by the “mini” budget in October 2022. However, in a trading statement released the following month by L&G, they stated that their expectations for full-year operating profit remained unchanged by the market turbulence.
In the first half of 2022, L&G signed £4.4 billion new Global Pension Risk Transfer (PRT) business premiums, an increase of 42% year on year. This increase is in part thanks to the company’s recent expansion into the US, which could offer further room for growth in the future.
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 4,500 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:
- Access to a constantly growing library of educational articles and regular analytical news
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