Seeking out high-growth businesses that can generate market-beating returns can be quite entertaining. However, it seems that, more often than not, growth stocks carry a lot of volatility, which can be unnerving at times.
Investing in steady, slower-growth businesses can be the more prudent option. By splitting up a total investment of $125,000 into the four high dividend yield companies discussed below, you might be able to add as much as $10,000 of dividend income to your portfolio this year.
Let's check out the pros and cons of each company and assess why 2024 could be a great opportunity to open positions.
1. Rithm Capital: 9.7% dividend yield
The first company on the list is real estate investment trust (REIT) Rithm Capital (RITM 0.09%). REITs generally carry high dividend yields because they are required by law to pay out at least 90% of their annual taxable income to shareholders. At a 9.7% yield, one-fourth of the proposed $125,000 investment could generate roughly $3,000 of dividend income.
One of the core themes of the current state of the macroeconomy is high interest rates. Given this dynamic, traditional banks have become more stringent in their lending standards. This approach has opened the doorway for Rithm, providing the company with overlooked opportunities in commercial real estate, mortgage loans, and even rentals.
RITM Price to Book Value data by YCharts
As of the time of this article, Rithm stock traded at a price-to-book (P/B) multiple of 0.84 -- well below its 10-year average. Furthermore, two of the company's competitors, Starwood Property Trust and Annaly Capital Management, each trade at a P/B multiple of slightly more than 1.
I have a hunch that the markets are overlooking Rithm, given the company's exposure to interest rate policy set by the Federal Reserve. While I understand these concerns, I think they are short-sighted. Long-term investors in Rithm stock have enjoyed a total return of more than 140% during the past decade. Given the company's diversified roster of services, coupled with a unique opportunity to take advantage of disparities in the marketplace given current credit underwriting policies at banks, I think Rithm is set up to continue its robust performance.
2. Altria: 9.5% dividend yield
The second company I'm exploring is tobacco giant Altria (MO 1.93%). Indeed, demand for tobacco products has been on the decline for many years as consumers become more health conscious. Moreover, current macroeconomic conditions, hallmarked by high borrowing costs and inflation, have caused consumer spending to drop in certain areas. Altria has not been immune to these trends, and its financial profile reflects that.
Nevertheless, as the best companies often do, Altria has found ways to combat the shrinking popularity of traditional tobacco products. More specifically, the company is making inroads in the smokeless tobacco and vaping markets as it looks to diversify its product offerings. While time will tell if these investments will pay off, current investors may want to take advantage of the company's depressed share price.
Altria stock currently trades at a forward price-to-earnings (P/E) multiple of 8.3, far below the S&P 500's 21.7. It sure looks like investors have soured on Altria and do not expect much from the company. But perhaps what makes Altria the most unique company on this list is its esteemed position among the Dividend Kings, or companies that have raised their dividends for 50 consecutive years or more.
Long-term investors should zoom out and think about the entire picture here. While tobacco products are falling out of favor, Altria has faced its share of uphill battles throughout its long history and has always found ways to reward loyal shareholders.
Given its 9.5% yield, one-fourth of the proposed $125,000 investment could generate more than $2,900 of dividend income for your portfolio. Investors may want to seriously consider a position in Altria at its current valuation, all while reaping passive income from a company that has consistently raised its dividend.
3. Verizon Communications: 6.8% dividend yield
Coming in at No. 3 is telecommunications provider Verizon Communications (VZ 1.57%). I'll admit, the telecommunications sector isn't the most glamorous. The products and services offered by these companies are generally commoditized, thus forcing major players to compete on price. Moreover, as streaming services gain momentum, companies like Verizon are constantly battling subscriber churn. It shouldn't come as a surprise that Verizon stock has fallen about 3% during the past year.
Yet despite a challenging competitive landscape, Verizon still manages to generate robust free cash flow. In turn, the company has the financial flexibility to consistently reward shareholders. In fact, back in September, the company raised its dividend for the 17th consecutive year. I think these dynamics are discounted by investors who are seeking more lucrative growth prospects.
So, while Verizon stock is likely not going to handily outperform the broader markets, dividend investors still might like the stock. At a 6.8% yield, one-fourth of the proposed $125,000 investment could bring in more than $2,100 of dividend income.
4. AT&T: 6.4% dividend yield
The last company on the list is Verizon competitor AT&T (T 0.76%). What makes AT&T a bit more attractive is the fact that it is actually increasing revenue, unlike Verizon.
Moreover, AT&T's strong cash flow generation has allowed the company to clean up its balance sheet and pay off debt. By improving its liquidity profile, you might think that the company is earning cheers from Wall Street. But this isn't the case.
Back in 2022, AT&T cut its dividend by roughly half. Naturally, investors soured and likely started doubting AT&T's ability to manage the business efficiently. As of the time of this article, AT&T stock is trading near some of its lowest levels in three decades.
While it's understandable for investors to question management's operating capabilities after such a drastic move as cutting the dividend, I see the current price action in the stock as a buying opportunity. Given the company's improving net debt position, I think the dividend is relatively safe. At a 6.4% yield, the final one-fourth of the proposed $125,000 investment would produce $2,000 of dividend income, bringing the total amount of passive income to $10,000.
Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
