These 2 High-Yield Stocks are Top Buys

February 27, 2024
By The Investing Insider Staff

Key Takeaways:

  • Altria (Ticker: MO) offers a 9.76% forward dividend yield, 54 years of payout growth, and strategic expansions into smoke-free products.
  • Energy Transfer (Ticker: ET) boasts an 8.66% forward dividend yield, an extensive natural gas pipeline network, and delivered 24.5% dividend growth in 2022.
  • Both companies significantly outperform their sector medians for dividend yields, underscoring their income appeal.

Dividend-paying stocks have always attracted savvy investors, particularly those seeking investment opportunities that combine lower risk with attractive yields.

Companies that not only sustain but also increase their dividends are considered extremely valuable, especially during times of market volatility. Altria Group (Ticker: MO) and Energy Transfer LP (Ticker: ET) are exemplary in this regard.  Both companies offer relatively safe and superior yields above 8%.

Today, we’ll dive into the fundamentals that justify the high payouts and highlight the stability and appeal of the dividends paid by these companies.

Top Dividend Stock #1: Altria Group (Ticker: MO)

Altria's History Setting the Stage for its Future:

Founded in the 19th century (as Philip Morris Companies), Altria Group (Ticker: MO) has emerged as one of the largest players in the tobacco industry.

The company manufactures and markets an extensive array of tobacco products, including cigarettes, smokeless tobacco, machine-made large cigars, and pipe tobacco. Its product lineup features prominent brands such as Marlboro, Copenhagen, Benson & Hedges, Chesterfield, and Black & Mild.

Altria Group adopted its current name in 2003, moving away from Philip Morris Companies. This rebranding was a strategic initiative to signify the company's expanded focus beyond just tobacco products and to address the negative perceptions linked to the tobacco industry.

Growth Via Acquisition:

Moving forward, Altria's strategic focus is to lead the industry toward a less-smoke future.

This vision is underscored by its investments and efforts in product diversification, focusing on meeting the rising demand for alternative, smoke-free products.  

In line with this strategy, Altria has executed several key strategic actions, including acquiring a 45% interest in an advanced cannabis research company, Cronos Group for $1.8 billion in 2018 and securing a 35% stake in electronic cigarette manufacturer JUUL Labs for $12.8 billion in the same year.

While both of these investments haven’t panned out as originally anticipated, Altria has also broadened its portfolio to include less harmful alternatives to traditional cigarettes.

This is highlighted by its investment in Burger Söhne's global business (notably, the On! brand) through Helix Innovations and the establishment of a joint venture with Japan Tobacco to market Ploom-heated tobacco products in the United States. Furthermore, Altria expanded its presence in the electronic cigarettes and vaping sector by acquiring NJOY Holdings in June 2023.

Altria’s FY 2023 revenue stood at approximately $20 billion, with a net profit of a whopping $8.13 billion.

Why We Think Altria is a Top Dividend to Buy:

The Altria Group's dividend strategy is notably robust, as evidenced by a forward dividend yield of 9.76% and an annual payout of $3.92, correlating to a payout ratio of 77.58%.

This strategic approach is highlighted by a consistent dividend growth over 54 years, with a five-year growth rate of 5.06%.

When juxtaposed with the sector median, Altria's forward dividend yield is strikingly higher, showing a differential of more than 3.6 times the sector's median yield of 2.70%, and a 24.56% increase from its own five-year average of 7.83%. This not only illustrates a strong commitment to shareholder value but also Altria's exceptional capability to sustain and enhance its dividend payouts, significantly surpassing its industry peers.

Moreover, an analysis of the dividend yield trends over the last four years presents an average yield of 8.01%, which far exceeds the sector median by over 3.3 times, which is set at 2.42%. The trailing twelve-month (TTM) dividend yield of 9.56% also greatly surpasses the sector median by over 3.5 times, with a 24.28% rise above the company's four-year average.

This enduring superiority in dividend yield not only highlights Altria Group's prominent position within its sector but also accentuates its financial stability and the attractiveness of its dividend policy to investors in search of consistent and reliable income sources.

Top Dividend Stock #2: Energy Transfer LP (Ticker: ET)

What Energy Transfer LP Does:

Energy Transfer LP (Ticker: ET) is recognized as a central player in the energy sector, with a focus on delivering energy-related services, especially in the transportation of natural gas and propane pipeline transport.

Founded in 1996 and based in Dallas, Texas, Energy Transfer has grown to be an integral part of the energy infrastructure, holding a considerable presence in both the natural gas and liquids markets.

The operational scope of Energy Transfer encompasses approximately 11,600 miles of natural gas transportation pipelines along with natural gas storage facilities strategically located in Texas and Oklahoma.

The company's infrastructure facilitates the sale of natural gas to a diverse clientele, including electric utilities, independent power plants, local distribution companies, marketing companies, and industrial end-users.

Furthermore, Energy Transfer's assets include a comprehensive network of natural gas gathering and natural gas liquid (NGL) pipelines, processing plants, and treating and conditioning facilities across multiple states, enhancing its capacity to meet the intricate demands of the energy market.

In addition to its gas operations, Energy Transfer owns and operates around 5,650 miles of NGL pipelines, NGL fractionation facilities, and storage facilities with substantial working storage capacity. This extensive network supports the company's activities in crude oil transportation, terminalling, acquisition, and marketing, as well as the distribution of gasoline, middle distillates, and motor fuels.

ET’s full-year 2023 revenue stood at approximately $79 billion, with a net profit of $3.93 billion.

Why We Think Energy Transfer LP is a Top Dividend Stock to Buy:

Energy Transfer LP (ET) presents a compelling case in its dividend analysis, with a forward dividend yield of 8.66% and an annual payout of $1.26, despite a payout ratio of 114.22%.

This level of payout ratio indicates a substantial commitment to returning value to shareholders, albeit at a rate that surpasses its earnings. Notably, ET has demonstrated a substantial one-year dividend growth rate of 24.50% on a trailing twelve-month (TTM) basis, illustrating a recent surge in its dividend growth amidst challenging market conditions over a recent history that spans two years of growth.

A closer examination of ET’s dividend history shows a slight dip in the trailing twelve-month (TTM) dividend yield to 8.56% and a forward yield of 8.66% from a higher four-year average yield of 10.25%.

However, this dip can be attributed to the prevailing rising interest rate environment, which generally exerts downward pressure on dividend yields. Nonetheless, Energy Transfer's dividend yield remains impressively high, significantly outpacing the sector median by over 2.28 times for the forward yield. Despite the challenges posed by the interest rate landscape, ET's dividend performance is expected to stabilize and maintain its attractiveness to investors seeking reliable income streams.

Final Thoughts:

For income investors, few things instill confidence like consistency and stability in dividends.

Altria (Ticker: MO) and Energy Transfer (Ticker: ET) deliver on both fronts, with each company boasting decades of uninterrupted dividend growth backed by strong fundamentals.

Altria demonstrates resilience amid a shifting landscape, leveraging its brand strength and pricing power to sustain attractive payouts. All while strategically positioning itself for future growth through investments to expand beyond traditional tobacco products. With a forward yield approaching 10%, Altria makes a compelling case for income allocation.

Energy Transfer draws stability from its vast pipeline network that makes up the backbone of U.S. energy infrastructure. Trading volatility for reliability, Energy Transfer offers investors a well-covered yield of 8.66% and potential for substantive growth, as evidenced by its 24.5% dividend expansion last year.

In times marked by unpredictability, the certainty of dividends from these stalwarts offers investors a degree of calm. Both companies have carved out defensible niches to deliver incomes with room to run. For investors seeking cozy returns, Altria and Energy Transfer warrant consideration. Their histories inspire confidence, while their future trajectories stoke further optimism. Landing shares in these high-yield opportunities could pay dividends, figuratively and literally, when consistency matters most.

Frequently Asked Questions:

Q: Why do dividends appeal to investors, especially during volatility?

A: Dividends provide steady income versus speculative returns and reduce volatility risk in portfolios.

Q: What factors make Altria's dividend payouts attractive?

A: The high 9.76% forward yield, 54 years of consecutive growth, and reallocations to maintain sustainability.

Q: How does Energy Transfer offer substantial dividends?

A: Through its essential role in gas pipelines, liquidity to sustain payouts, and 24.5% dividend growth in 2022.

Q: How do the dividends of Altria and Energy Transfer compare to peers?

A: Their yields significantly beat sector medians, by over 3 times, showing exceptional income versus competitors.

-Investing Insider Staff
This article is informational purposes only and is not investment advice.  See full disclaimer here
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