3 High Dividend Stocks With Attractive Total Return Potential
These stocks offer more than just their dividends
- These dividend stocks offer high total return potential for investors.
- W.P. Carey (WPC): This REIT has a low-risk, diversified portfolio.
- GlaxoSmithKline (GSK): Its impressive dividend and aggressive investments in future products present investors with an attractive combination.
- AT&T (T): T could deliver attractive long-term returns alongside reliable and lucrative current income.
In the current economic climate of rising interest rates, persistent inflation, simmering geopolitical risks and looming recessionary threats, it’s crucial to prioritize quality, safety and high dividends when selecting stocks. This article explores three high dividend stocks with appealing total return potential.
With a potential recession looming, investors should prioritize quality, safety and high dividends when selecting stocks for their portfolios. These are three options that offer investors attractive long-term total return potential. They are reliable, high-yielding stocks that can provide lucrative current income streams.
Data last updated: March 12, 2023 10:10 PM EDT
W.P. Carey (WPC)
W.P. Carey (NYSE:WPC) is a real estate investment trust (REIT) that focuses on triple net lease properties, primarily single-tenant free-standing properties. This approach has proven to be a reliable method for generating wealth, as these properties have exhibited consistent performance and high occupancy rates, even during challenging macroeconomic conditions.
WPC owns a diversified portfolio of approximately 1,500 properties leased to roughly 400 tenants across Europe and North America. With a focus on industrial and warehouse real estate, WPC also has significant exposure to retail, office and personal storage real estate in both regions. One-third of WPC’s rental income originates from investment-grade tenants. Additionally, the majority of its rent is CPI-linked, a rarity in the triple net lease sector. The company strategically locates its properties to fulfill mission-critical roles for its tenants.
Moreover, WPC primarily owns recession-resistant and e-commerce-resilient assets. Despite the challenges of Covid-19 lockdowns, WPC has proven its resilience and outperformed other triple net lease REITs. Since 1998, the company has raised its dividend per share annually, making it a contender for Dividend Aristocrat distinction.
With a BBB+ credit rating and plenty of liquidity, its balance sheet further augments its low-risk profile.
Last, but not least, with a dividend yield over 5%, strong organic rent growth thanks to soaring inflation rates, and a robust growth pipeline of properties it is acquiring at attractive investment spreads, WPC could combine safe and attractive current income with lucrative total returns over the long term.
GlaxoSmithKline (GSK)
GlaxoSmithKline (NYSE:GSK) is a healthcare company that produces and markets pharmaceuticals, vaccines and consumer products. Its pharmaceutical products focus on treating central nervous system, cardiovascular, respiratory and immune-inflammatory diseases. With annual sales of approximately $35 billion, GlaxoSmithKline is headquartered in the United Kingdom. However, it offers American investors access through American Depositary Receipts (ADRs), which trade and provide dividends in U.S. dollars.
The company enjoys several competitive advantages. First of all, GlaxoSmithKline dedicates a significant portion of its sales (nearly 13%) to research and development. This — combined with its considerable scale — gives it a competitive advantage relative to smaller competitors who are unable to keep up with its considerable investments in developing market-leading products.
Second, while Advair’s underperformance has impacted recent financial results, the market acknowledges this fact. That is likely why the stock’s current valuation is relatively low. Over time, however, Advair’s importance to the company’s overall bottom line will diminish while GlaxoSmithKline’s other respiratory products demonstrate robust growth rates. The company also has several vaccines that exhibit strong growth rates, signaling potential for expansion.
Although GlaxoSmithKline sustained its earnings during the previous recession, there were periods of volatility. For instance, the company’s high earnings per share (EPS) in 2015 was largely due to a $13.7 billion pretax gain from an asset swap with Novartis (NYSE:NVS).
We anticipate a 3% earnings growth rate through 2028, driven by expected increases in the company’s new and specialty products and a resurgence in vaccine sales. The company’s dividend payment has fluctuated from year to year, making it difficult to predict future growth. Nonetheless, last year GlaxoSmithKline increased its dividend payment by over 20% in local currency for the third consecutive year. The April 6, 2022 payment was the largest.
All told, its attractive dividend and aggressive investments in future products present investors with an attractive combination of current yield and potentially rich total returns over time.
AT&T (T)
AT&T (NYSE:T) is a prominent telecommunications company that offers a broad spectrum of services, including wireless, broadband and television. The company comprises two operational segments: AT&T Communications and AT&T Latin America.
AT&T Communications provides communication and entertainment services through mobile and broadband channels. The segment serves more than 100 million U.S. customers and approximately 3 million business customers. It generated $114.7 billion in revenue in 2021.
AT&T Latin America offers mobile services to consumers and businesses in Mexico, generating $5.4 billion in revenue in 2021. However, it’s worth noting that the company sold off its Vrio video operations in mid-November 2021. This accounted for $2.7 billion of the $5.4 billion during that period.
Following a 36-year period of consistent dividend increases, AT&T held its dividend payment steady in 2021. However, this marked the end of the company’s longstanding streak of dividend increases. Subsequently, after the spinoff of its WarnerMedia business in mid-2022, AT&T reduced its dividend payment by 47%.
Following the spinoff, AT&T has become a more focused and streamlined company with the objective of becoming America’s premier broadband provider, anchored by its fiber network. The company intends to expand its fiber network to support over 30 million fiber locations by the end of 2025. In the next few years, AT&T plans to make significant capital investments in its telecom business. However, after 2024, these investments are expected to taper off as the company moves past the peak years for capital investment in 5G and fiber.
Additionally, AT&T aims to strengthen its balance sheet by reducing its net debt with free cash flow after dividends. Furthermore, AT&T is on track to achieve over $4 billion of the $6 billion run-rate cost savings target by the end of 2022, which should boost adjusted EBITDA growth in the coming years.
With a current dividend yield of nearly 6% and a share price that is well off of 52-week and all-time highs, T could deliver attractive long-term returns alongside reliable current income.
This post originally appeared at InvestorPlace.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Category: Dividend Yield
