Dividend stocks may soon gain more attention from investors. This is because Federal Reserve The central bank is expected to cut interest rates on Wednesday, starting a new cycle of lower interest rates, which should lead to lower Treasury yields and savings account interest rates.
This process makes dividend stocks more attractive. Dividend stocks are likely to rise as bond yields fall because bond investors will return to dividend stocks in search of fruit.
If you’re looking for dividend stocks, a good place to start your search is Standard & Poor’s 500Let’s take a look at the three highest-yielding stocks in the broad market index today.
1. Walgreens Boots Alliance (Dividend Yield: 11.1%)
If you are a dividend investor, it is important to understand the difference between high yield stocks and yield traps. Walgreens Boots Alliance (NASDAQ: WBA) It seems like a classic example of a yield trap.
The pharmacy chain’s shares have fallen a whopping 65% so far this year, steadily falling as it struggles with COVID-related revenue losses, narrowing margins in its pharmacy business, a continued decline in its retail business, and challenges related to the ill-advised acquisition of VillageMD, a primary care clinic, which led to significant business losses.
By traditional metrics, Walgreens now looks very cheap, trading at a forward price-to-earnings ratio just above 3, but that’s based on adjusted earnings. However, that likely reflects investor concerns about more writedowns and lower earnings in the coming quarter. In fact, the company has taken $13.6 billion in impairment charges this year, most of which are tied to its VillageMD acquisition.
The company also reported negative free cash flow of $1.5 billion this year.
Walgreens may have to cut its dividend again, and the company looks likely to be dropped from the S&P 500 soon as its market cap drops below $8 billion. The stock is best avoided.
2. Altria (Dividend Yield: 7.9%)
Tria Group (NYSE: MO) British Tobacco was one of the best performing stocks on the market for almost 50 years until 2017, but that has changed recently as smoking rates continue to decline and the company struggles to adapt to new tastes.
Its $12.8 billion investment in JUUL Labs has collapsed and it has also lost most of its investments in cannabis farms. Kronos Group.
Recently, the company acquired NJOY to further expand its presence in the e-cigarette market.
Tobacco stocks have been rising in the spring as investors appear to sense a turning point as next-generation products take hold. Additionally, bond investors may be preparing to shift to dividend-paying stocks.
Altria offers a consistent dividend yield of 7.9%, and the company has increased its dividend 59 times over the past 55 years.
I remain skeptical about the company’s ability to grow over the long term given its declining cigarette sales, but you could certainly find worse than Altria if you’re looking for a high-yield stock as its 7.9% yield is well-funded and reliable.
3. Ford Motor Company (Dividend Yield: 5.6%)
Like Altria, Ford Motor Company (NYSE: F) Toyota has been a leader in its industry for generations, but its stock has struggled in recent years as the company has lost money in international markets, watched demand for electric vehicles decline, and seemed stuck growing slowly in a mature industry.
The company’s shares fell after the release of its second-quarter earnings report, in which the company expects a loss of $5 billion in its electric vehicle division. Earnings also fell in the second quarter, due in part to pressures in the electric vehicle division and slowing demand.
The good news is that Ford’s other divisions, internal combustion vehicles and commercial vehicles, remain very profitable.
Ford expects full-year adjusted operating profit of $10 billion to $12 billion and adjusted free cash flow of $7.5 billion to $8.5 billion. That makes the stock look cheap, trading at 4 times adjusted operating profit and 5 times adjusted free cash flow.
Ford currently pays a dividend yield of 5.6%. If the company can capitalize on the growth in hybrid vehicles, the stock could go higher from here. While Ford has underperformed the market for years, it looks like a good buy at its current price, especially if you’re looking for a high-yielding stock.
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Jeremy Bowman He has no position in any of the stocks mentioned. The Motley Fool recommends Cronos Group. The Motley Fool has Disclosure Policy.
Should You Buy The 3 Highest Dividend Paying Stocks In The S&P 500? Originally posted by The Motley Fool