Investing
6 S&P 500 Stocks With 5% Yields, Dividend Growth and Higher Share Prices Ahead
March 21, 2018 12:45 pm
Last Updated: January 12, 2020 2:13 am
Investors love companies that pay strong dividends. And companies that have high dividend yields and can keep growing their dividends are even better. The problem is that these higher dividends are not all created equal. Some companies are in trouble, or they may have a hard time keeping their payouts so high.
24/7 Wall St. has screened the various sectors in the S&P 500 Index and pulled out six companies that offer several things many income-seeking investors would love to see. First is that they have a yield of 5% or higher. Second is that they are large companies that can keep growing their payouts for the coming years, even if they have experienced (or are expected to) some recent trouble in their business. And each stock needs to come with an expected upside in the share price ahead.
To qualify as a 5% or higher yield for dividend and share price growth, several conditions had to be present. These S&P 500 companies had to have a current share price under the Thomson Reuters consensus analyst price target. The companies also had to have either an expected higher dividend estimate from Thomson Reuters analysts or enough in earnings per share ahead to support a higher payout and its current debt, even if that was not officially expected.
24/7 Wall St. also eliminated the nontraditional structures, wherein the dividends and distributions may come from cash flows or one-time events, and also those distributions that are considered a return of capital rather than coming from traditional operational metrics. For instance, real estate investment trusts (REITs) pay out under their funds from operations.
As a reminder, many investors generate half of their total returns over time from dividends. Still, there can never be any certainties that dividends will grow or that price target and earnings assumptions will always live up to expectations. We also limited each pick to one per specific sector.
Here are six stocks in the S&P 500 with 5% yields that fit our screened criteria.
AT&T
> Yield: 5.5%
AT&T Inc. (NYSE: T) needs little introduction, but it has been stuck while it pursues its acquisition of Time Warner. AT&T has a 5.5% yield, and the $36.15 share price compares with a consensus analyst target price of $40.71. The $2.00 forward dividend is expected to rise to $2.09 by 2020. It has a whopping $222 billion market cap, before considering what it might be if the merger is finally approved by regulators.
Guggenheim recently started AT&T coverage with a Buy rating and a $42 price target. Unfortunately for AT&T, its stock has been largely range-bound while it awaits an outcome of its challenged acquisition of Time Warner, after it had already acquired DirecTV.
Ford
> Yield: 5.4%
Ford Motor Co. (NYSE: F) has had to endure peak-auto issues for some time, and the stock hasn’t been what it was a few years ago. That said, it’s $11.07 share price and $44 billion market cap come with a 5.4% yield. The $0.60 current annualized dividend is also expected to be up at $0.66 in 2019, but it may not grow after that even though the earnings per share estimate is closer to $1.60.
Ford recently was given a rare two-notch upgrade to Overweight at Morgan Stanley, and the firm outlined why the stock could rise to $15 in its call.
Sponsored: Find a Qualified Financial Advisor
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.