Interest rates have plunged back to some of the lowest recorded yields ever, and the reality is we are in some of the lowest rate levels since the 1950s. With the distinct possibility that the Federal Reserve will continue to keep rates at record lows for years, the 30-year Treasury bond has fallen to a paltry 1.37% coupon. Pretty small for committing capital to an investment for 30 years.
The problem for many income investors is they need higher yields but can’t risk buying junk bonds or highly leveraged closed-end and exchange-traded funds. The answer may be to look back to the equity markets, as some of the top stocks that have paid consistent, dependable long-term dividends have been hammered.
We screened our 24/7 Wall St. research database and found five companies that all pay at least a 6% dividend and offer a reasonable degree of safety. While not intended to replace guaranteed issues like Treasury bonds or certificates of deposit, they make sense for those seeking investment income who have a slightly higher risk tolerance.
Altria
This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro, one of the most valuable brands in the world.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
Shareholders now receive a 7.96% dividend. The BofA team has a Buy rating with a $50 target price. The posted consensus target is $48.93, and Altria stock closed at $43.46 on Friday.
AT&T
This is a top telecom and entertainment play. AT&T Inc. (NYSE: T) is the largest U.S. telecom company and provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections, with 77 million postpaid subscribers.
While AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition, the company through WarnerMedia has become a diversified media and entertainment business.
WarnerMedia’s second-quarter 2020 operating revenue was $6.8 billion, down 22.9% year over year, with segment operating income contribution of $1.9 billion, down 18.4% from the year-ago quarter. AT&T estimated COVID-19 was responsible for $1.5 billion in lower sales at WarnerMedia. Turner’s advertising revenue plummeted 37%, to $796 million in the most recent quarter.
Investors receive a significant 7.03% dividend. BofA Securities has a $36 price target for the shares, which compares to the lower consensus target across Wall Street of $32.46. AT&T stock closed Friday at $29.69.
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