In my view, a “jumbo” dividend yield — in the context of the low interest rate environment — is slightly above, say, 3%, or more than double the returns of the broad market and 10-year Treasury, notes Chuck Carlson, specialist in dividend reinvestment and editor of DRIP Investor.
Of course, the pursuit of returns has never been a good investment approach. Building a portfolio based strictly on returns limits your portfolio’s diversification (many high-yield stocks are aggregated into a few sectors), hinders your portfolio’s prospects for dividend growth, and limits the portfolio’s capital-earning potential .
More from Chuck Carlson: Add real assets to your retirement portfolio
Still, there are some stocks with jumbo returns that represent decent portfolio holdings and should offer healthy cash flow, growing dividend flows and reasonable capital gains potential.
The stocks profiled here have yields of at least 3% and have shown dividend growth over the past five years. They also offer a direct purchase plan where any investor can buy the first share and each share directly from the company.
ExxonMobil (XOM) yields more than 6%. Oil stocks, including Exxon, have sharply rolled back their highs in recent trading. I consider the pullback to be a decent entry point with these stocks.
I’m more comfortable with the sustainability of the company’s dividend. Earnings estimates for 2021 and 2022 have risen sharply over the past 30 days. The consensus estimate for 2022 earnings is $4.86 per share, which is higher than the company’s current $3.48 dividend.
To be sure, Exxon’s earnings can fluctuate widely depending on oil prices, so the company isn’t completely out of the loop at this point. Still, I own the stock and expect these stocks to find decent support in the top $40s.
Exxon still has one of the more user-friendly direct purchase plans. Minimum initial investment is $250. The company waives the minimum if an investor agrees to automatic monthly investment of at least $50. There are no buy-side fees in the plan. The plan also includes traditional and Roth IRA options.
I have to admit I was lukewarm on Pfizer (PFE) for a long time, and the stock didn’t really prove me wrong – until recently. Indeed, after trading sideways for the better part of two decades, the stock has risen sharply this year.
The top line gets a nice lift from the company’s Covid vaccine. And it looks like the demand will have legs here, with the government looking to booster shots to ward off Covid variants.
Pfizer is still not what you would consider an expensive stock. These stocks are trading at about 14 times earnings estimates for 2022. You need to respect the recent price breakout. And the 3.2% dividend yield is a nice kicker to the overall return potential. For investors looking for relatively high returns in the pharmaceutical sector, Pfizer looks better now than in many years.
Note: Pfizer offers a direct purchase subscription. Minimum initial investment is $500. The company waives the $500 minimum if an investor agrees to automatic monthly investment via electronic debit from a bank account of at least $50 for 10 consecutive months.
One stock that has really warmed me up over the past few months is Philip Morris (P.M). Best known for its international cigarette business, the company is transforming its business in a number of ways.
For starters, the company has expanded its revenue stream from its IQOS non-combustion tobacco products. Philip Morris hopes to generate more than half of its sales from smoke-free products by 2025.
Philip Morris has also expanded his exposure to therapy delivery systems. The company recently announced the planned acquisition of Vector (VEC.L), a UK-based pharmaceutical company specializing in inhalation medicines. The acquisition is in line with other deals the company has entered into to further its ‘Beyond Nicotine’ strategy.
The stock has responded to the moves, with these stocks climbing to a new 52-week high recently. However, the stock is still fairly valued at just 15 times earnings estimates for fiscal 2022. The 4.7% dividend yield is especially attractive in this low-interest environment.
I know some investors will have problems investing in a tobacco company, and I understand the hesitation. But Philip Morris is more than just a tobacco company, and I think the transformation will result in a higher share price.
The company’s direct purchase plan has a minimum initial investment of $500. The company waives the $500 minimum if an investor agrees to automatic monthly investment via electronic debit from a bank account of at least $50 for 10 consecutive months. The plan includes both a traditional and a Roth IRA option.
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