As yields on the 10-year Treasury note fall to all-time lows and stock prices rise, the search for safety and return can be challenging.
However, here are 10 high-yield dividend stocks that are worth a look. Several are even in my Conservative Retirees dividend portfolio.
The upside price potential of these stocks adds even further appeal, due to their below market valuations or earnings that are on the verge of major recovery. High yields and price appreciation combine to make for interesting investing, and most of these companies are among the best blue-chip dividend stocks, due to their long histories of paying higher dividends.
Let's take a look at these top high-yield dividend stocks.
AT&T has come a long way from its days as Ma Bell offering plain old telephone service. The company is one of the world's largest communications and digital entertainment service companies.
The company's business breaks down into four groups: business solutions (49%); entertainment (24%); consumer mobility (24%); and international (3%).
AT&T's diversified business provides stability and predictability. Traditional wire line customers are slowly declining.
A 6.6% average growth in wireless customers has more than made up for the wire line decline. The fastest-growing segment is entertainment, which includes last year's acquisition of Direct TV as well as broadband Internet service under the U-verse brand.
AT&T has kept tight controls on costs. This has resulted in operating earnings more than doubling over the past five years from $9.5 billion to $24.8 billion last year.
Telecommunication and digital entertainment are industries with high barriers to entry. The huge amount of capital equipment as well as regulatory licenses and approvals provide heavy insulation from new entrants.
For the past 30 years, the industry has been marked by consolidation through acquisitions of its major entities, and this is quite likely to continue as various sectors such as wireless and digital entertainment mature.
AT&T is a model of dividend-paying consistency having increased the payout in each of the past 32 years, making the company part of the Dividend Aristocrats Index. The payout of 80% is well above average so future dividend growth is likely to match earnings progress.
The dividend is secure by virtue of $30 billion in cash and operating cash flow that amounted to $36 billion last year.
The company's stock trades at a high dividend yield of 4.48%.
The GM that emerged from its June 2009 bankruptcy is scaled down, leaner and more nimble. The company remains a global leader in the manufacturer and sales of cars and trucks as well as auto finance.
However, GM's balance sheet is substantially more liquid.
Vehicle operations breakdown into four regions: GM North America (55%); GM Europe (19.4%); GM South America (14.7%); and GM International (10.9%). Collectively, vehicles account for 98% of total revenue, with GM Financial making up the rest.
On a global scale, the automotive industry is highly competitive. The principal factors that determine consumer choice include available options, fuel economy, functionality, price, quality, reliability, safety and style.
Market leadership can change from year to year and varies widely by individual countries. To improve its competitive prospects, GM reduced the number of brands that it markets, and it has become more nimble in its styling and design.
GM resumed paying a quarterly dividend of 30 cents a share in January 2014. Since then, the annual rate has risen to $1.52 from $1.20 a share.
Dividend investors in the new GM have the cushion of a low 22% payout ratio, combined with an above-average 4.94% yield. Behind this is a much stronger balance sheet featuring $25 billion in cash and just $7 billion in long-term debt.
GM is a holding in our Top 20 Dividend Stocks portfolio and is also owned by Berkshire Hathaway.
This company makes money as a contract driller engaged in drilling oil and gas wells. Based in Tulsa, Okla., Helmerich & Payne does work across the globe.
In 1998, the company developed FlexRigs, a product used extensively in drilling unconventional shale rock formations in Texas such as the Permian Basin and the Eagle Ford formation as well as the Bakken formation in North Dakota.
The contract drilling business is heavily cyclical. The industry is moderately capital intensive with few other barriers to entry.
After benefiting substantially from a crude price increase up to 2015, the company has substantially cut back since. However, its dividend remains secure.
Helmerich & Payne has consistently paid cash dividends since 1993. This is a noteworthy achievement, given that the business is cyclical.
The dividend was further increased last month to an annual payout of $2.80, signaling the company's efforts to keep shareholders satisfied. This is unusual, given the expectation for operating losses both in 2016 and again next year.
The balance sheet shows about $1 billion in cash and other liquid investments, $7 billion in total assets and just under $500 million in debt.
Shares of Helmerich & Payne have a high dividend yield of 4.07%.
As the world's largest pulp and paper company with 65,000 people, International Paper's traces its roots back to 1898. If a consumer product has anything to do with paper, chances are International Paper participates in some way.
Industrial packaging accounts for 65% of the company's $22.4 billion in revenue, paper and pulp 22% and consumer packaging the remaining 13%.
The markets in the pulp, paper and packaging product lines are large, fragmented and highly competitive. Along with its scale, International Paper owns numerous copyrights, patents, trademarks and other rights intended to maintain competitive advantage.
Over the past two years, spending on research increased 69% to $27 million, while capital expenditures totaled $6.3 billion over the past five years.
International Paper's dividend is $1.64 a share, reflecting a payout ratio of 74%. Over the past decade, dividends have grown at an above-average annual 6.4% rate and at a 13.6% annual pace over the past five years.
During the economic recession in 2009, the dividend was cut 67.5%. The recent payout ratio is likely to remain, given a balance sheet that features $1 billion in cash, $15 billion in long-term debt and slightly negative overall cash flow.
Shares of International Paper have a dividend yield of 3.87%.
This real estate investment trust provides financing capital to the health care industry for operators of senior and long-term care.
Omega Healthcare's portfolio of investments includes more than 900 properties in 42 states and the U.K.
The REIT acts as a landlord collecting rents on each property and passing 90% or more of the profits to stockholders. In this way, the income isn't taxed at the corporate level, and stockholders benefit through larger dividends.
The REIT health care sector is highly competitive.
There are 20 publicly traded REITs and numerous privately held entities. Some of these invest broadly in health care properties, while others focus on specific areas.
Omega Healthcare gains an advantage by being one of the largest players and has opportunity to continue consolidating the industry.
The REI has paid dividends since 1993 and has a solid track record of 12% annual earnings growth over the past five years. The current annual dividend of $2.18 has increased at a consistent average of 9.9% over the past 10 years and 9.7% in the past five.
Omega Healthcare's funds from operations last year were $1.92 a share, somewhat less than the cash dividend. This flexibility is aided by $8 billion in earning assets, $4 billion in equity and access to record low costs of borrowing.
The REIT's shares have a high yield dividend of 7.12%.
The former Pennsylvania Power and Light was founded nearly 100 years ago in Allentown, Pa. Today, this utility generates and delivers electricity and natural gas.
Customers extend beyond the Keystone state to include Kentucky, Tennessee and Virginia. Using its technical know-how, PPL operated four electric distribution networks in the U.K.
The U.S. utility business is in the throes of change as the industry attempts to move away from fossil fuels to alternatives such as biomass, solar, wind and others. At the same time, overall utility demand is slow growing, leading to consolidation of this fragmented sector.
However, for the time being, utilities should continue generating stable earnings, thanks to the non-discretionary nature of their services, with consumers and businesses continuing to need electricity and gas in virtually all economic environments.
PPL has paid cash dividends on its stock in every quarter since 1946. In February, the company increased the dividend for the 14th time in 15 years.
On a percentage basis, the dividend has increased by 187% during that period. Over the past 10 years, dividend growth has averaged 5.2% and 1.4% over the past five.
Management has said that the 67% payout ratio will be maintained through next year.
Shares of PPL offer a 4.09% dividend yield.
This is the largest utility serving Alabama, Florida, Georgia and Mississippi, and it ranks 95th in the S&P 500. The source of revenue comes from 33 hydroelectric and 31 fossil fuel generating stations, 16 solar, one biomass, one landfill and one wind.
The right to operate a utility and the prices charged to retail customers are regulated by the various public service commissions in each state. The Federal Energy Regulatory Commission regulates the sale and prices of energy sold between Southern and other utilities.
Southern has paid dividends on its common stock since 1948. Over the past decade, dividends have grown at a 3.6% average annual rate and 3.1% over the past five years.
Effective May 12, the annual payout was raised 6.6% to $2.24 a share. The payout ratio last year was 83% but will drop to 79% based on consensus 2016 earnings estimates.
The balance sheet shows $1.4 billion in cash, $25 billion in long-term debt and capital spending that about matches operating cash flow. This suggests that the future dividend ratio will likely remain in the area of 80%.
Southern's shares trade at a high dividend yield of 4.2% and are a favorite holding for investors living off dividends in retirement.
8. Spectra Energy Partners (SEP)
Based in Houston, Spectra Energy Partners is one of the largest pipeline master limited partnerships in the U.S. Spectra Energy Partners transports natural gas and liquids as well as crude oil through more than 15,000 miles of company-owned pipeline network.
The company also makes money by charging for the use of its 170 billion cubic feet of natural-gas storage and 4.8 million barrels of crude oil storage.
Demand is highly sensitive to the price of crude oil and natural gas. To help mitigate risks and to provide for steady cash flow, the company strives for customer contracts that reserve certain minimum pipeline and storage capacity.
More than 90% of revenue comes from these arrangements. This doesn't guarantee full utilization of assets, but the agreements help smooth commodity price swings while providing steady cash flow.
The oil and gas pipeline and storage business is highly competitive. Much like the demand for real estate, the key to success in the company's business is pipeline location.
Existing operators enjoy some degree of protection from the many regulatory hurdles involved in pipeline and storage building. With heavy capital costs involved in construction, long delays and uncertain outcomes tend to discourage new capital from entering the field.
Spectra Energy Partners has paid consistent dividends since its inception in 2007. The latest annual payout of $2.43 a share has grown by 8.9% annually since 2007 and 7.4% over the past five years.
With $250 million in cash, $20 billion in assets producing a 7.5% FFO margin and $4 billion in long-term debt there is room for growth in the dividend. Rising crude oil prices add further opportunities for FFO margins to improve.
The company's shares have a high-yield dividend of 4.37%.
This company refines and markets motor fuels and other petrochemicals. Based in San Antonio Texas, Valero Energy owns and operates 16 refineries in Canada, the Caribbean, the U.K. and the U.S.
The combined throughput capacity of these facilities amounts to about 3 million barrels per day. The company owns 10 ethanol plants as well as a 50-megawatt wind farm.
In 2013, the company spun off all the Valero retail business.
The business of petrochemical refining has considerable barriers to entry due to stringent environmental, political and regulatory hurdles.
There hasn't been a refinery with significant downstream capacity opened since 1977, according to the U.S. Energy Information Administration.
Capacity utilization at the existing 141 operating refineries in the U.S. is consistently high.
Valero Energy's annual dividend is $2.40. The company has continuously issued a quarterly payout since 1993.
With the exception of 2010, Valero Energy has produced exceptionally fast annual dividend growth, averaging 35.8% over the past 10 years and 56.6% in the past five.
The dividend payout ratio is a remarkably low 30%, as company earnings have increased substantially. The balance sheet shows $3.8 billion in cash, $44 billion in assets and just $7.2 billion in long-term debt.
Valero Energy's management has plenty of flexibility as it plans for the future.
The company's shares offer income investors a high yield of 4.81%.
When it comes to connecting people and business in telecommunications, Verizon Communications is one of the world's largest and most respected companies. Wireless represents the lion's share of business at 70% of sales and 93% of operating income, while wire line brings in the remaining 30% of revenue and 7% of income.
Within these two categories reside a vast array of products and services from voice and data services broadband video, corporate networking, and security solutions.
In short, Verizon Communications is a highly diversified giant serving hundreds of millions of people in the U.S. and around the world. The company's greatest strength is its wireless business, and it is generally ranked number one throughout the U.S.
There are only a limited number of government issued licenses for wireless communication. The substantial cost of these licenses combined with the construction of wireless networks means that there is little competition.
This could be one reason Verizon Communications is one of Warren E. Buffett's highest-yielding dividend stocks.
Verizon Communications, formally known as Bell Atlantic, was created by the 1984 breakup of AT&T and has been paying quarterly dividends continuously since. Increases have been made each year since 2006, qualifying the company as a Dividend Achiever.
Over the past 10 years, dividend growth has averaged 3.8% with a 2.6% rate in the past five.
The latest quarterly dividend of $0.565 a share was declared on July 6. An increase to $0.575 in the third quarter would be consistent with patterns of previous increases.
Verizon Communications pays out a conservative 50% of earnings while retaining ample reserves for capital expenditures or acquisitions. In the past 12 months, the company's operating cash flow amounted to a solid $36 billion, thus ensuring both the safety of the dividend and the ability to increase future payouts.
Shares of Verizon offer investors a high dividend yield of 4.1%, which is nearly three times higher than the yield on a 10-year Treasury note.