One of the best things about investing money on Wall Street is that there is no one-size-fits-all strategy. Thousands of publicly traded companies and e-exchange traded funds (ETFs) to choose from, allowing investors of all walks of life and risk tolerances to find securities that fit their investment goals.
However, there are certain strategies that produce higher returns than others. Over the past century, few strategies have been more successful than buying and holding high-quality dividend stocks.
in The power of dividends: past, present and futureAnalysts at Hartford Funds looked at different ways income stocks can outperform non-dividend-paying stocks over long timelines. Specifically, The Hartford Fund, in collaboration with Ned Davis Research, found that over the past half century, dividend-paying stocks have more than doubled the average annual return of non-dividend-payers (9.17% vs. 4.27%), despite a poor track record. Despite this, I discovered that I had achieved it. They are more volatile than non-payers.
However, this does not mean that all dividend stocks are created equal. For example, ultra-high dividend stocks, i.e. companies with a yield of more than four times the current yield. S&P500 (1.27%) — May be more trouble than it’s worth. A failed or struggling operating model and declining stock prices can “trap” investors looking for significant yields.
Thankfully, Not all high-income stocks are problematic.. The following three sensational mega-dividend stocks with an average yield of 6.23% are great buys in Q4 and beyond.
Pfizer: Yield 5.81%
The first high-dividend company that patient investors can confidently capture during the fourth quarter is the king of pharmaceuticals. pfizer (New York Stock Exchange: PFE).
As I’ve pointed out before, Pfizer is a victim of its own success. The company is one of the few pharmaceutical companies to successfully develop a COVID-19 vaccine (Comirnaty) and an oral therapy (Paxlobid) to reduce the severity of COVID-19 symptoms. It is. Cominati and Paxrobid have combined sales of these drugs topping $56 billion in 2022, but Pfizer’s cumulative sales are expected to remain at about $8.5 billion this year.
But if investors take a step back, they can see just how far Pfizer has come since the start of this decade. Pfizer is on track for 2024 sales of $61 billion, based on the midpoint of its sales guidance after achieving full-year sales of $41.9 billion in 2020. This represents a 46% increase in sales over four years, and approximately 45% of this expansion is due to the company’s efforts to combat the spread of COVID-19. There’s no question that Pfizer is a stronger company today than it was four years ago.
Pfizer is also expected to see non-organic growth. In December, it signed a $43 billion deal to acquire anti-cancer drug developer Seagen. Although the acquisition will have a negative impact on 2024 earnings per share (EPS), it is expected to result in significant cost savings and particularly expand Pfizer’s cancer drug pipeline and product portfolio.
The final piece of the puzzle that revenue seekers are salivating over is Pfizer’s valuation. The company’s forward price/earnings (P/E) ratio of 10x is significantly lower than the S&P 500’s forward P/E ratio, and represents a 7% discount to Pfizer’s average expected earnings multiple over the next five years. .
Enterprise Product Partner: Yield 7.21%
The second unbreakable dividend stock income seekers can confidently add to in Q4 is the energy giant enterprise product partner (NYSE:EPD). Enterprise has increased its underlying annual distribution in each of the past 26 years.
The historic demand cliff that occurred during the early stages of the pandemic depleted most oil and gas inventories, but Enterprise Product Partners largely avoided this disruption. The not-so-subtle secret is that it is an energy intermediary. Midstream companies like Enterprise are responsible for transporting and storing oil, natural gas, and refined products.
The key to Enterprise’s success lies in the nature of its contracts with upstream drilling companies. Specifically, we have fixed long-term contracts with drilling companies, many of which are fixed-rate contracts. This “fixed price” aspect removes the effects of inflation and fluctuations in energy commodity spot prices from the equation. This means your Enterprise’s operating cash flow will be highly predictable in almost any economic climate.
Another factor working in Enterprise Products Partners’ favor is tight global oil supplies. Years of capital investment shortfalls amid the COVID-19 pandemic and Russia’s invasion of Ukraine have combined to create supply uncertainty, with a generally positive impact on spot oil prices. giving. Rising spot prices for crude oil should encourage domestic drilling and provide further opportunities for the company to win lucrative long-term fixed-price contracts.
Enterprise Products Partners’ valuation also remains attractive. Opportunistic investors could buy into the stock for 10 times future annual earnings, but this is a fairly cheap valuation, with earnings per share expected to grow at an average of 6.6% per year through 2028. Growth is expected.
Ford Motor Company: Yield 5.68%
The third sensational high-dividend stock you can buy without hesitation in the fourth quarter is an automaker. ford motor company (New York Stock Exchange: F). Ford’s stock price plunged in July after the company’s second-quarter results, pushing the company’s yield to nearly 5.7%.
Ford’s recent struggles can be attributed to an industry-wide slump in electric vehicle (EV) sales. Due to everything from increased EV competition and price wars to a lack of available infrastructure, losses for Ford’s Model E business this year have ballooned to between $5 billion and $5.5 billion. EVs were supposed to be a huge catalyst for the auto industry, but they’re mainly squeezing the performance of traditional automakers.
The good news for Ford is that it has the ability to accelerate and brake as needed. Despite once-high spending expectations for EVs, the company last October announced plans to defer $12 billion in expected EV manufacturing investments.
More importantly, Ford’s internal combustion engine (ICE) vehicles beat it from a driving standpoint. The company’s F-Series pickups have been America’s best-selling trucks for 47 consecutive years, and the best-selling cars for the past 42 years (period!). Trucks have significantly higher margins than small sedans, so maintaining momentum in the heavy-duty truck line would be a big win for the company.
In July, Ford raised its 2024 adjusted free cash flow outlook by $1 billion to a range of $7.5 billion to $8.5 billion. With strong sales of the company’s F-Series and plenty of opportunities overseas, Ford’s ICE vehicles are firing on all cylinders.
Ford’s historically cheap valuation is a highlight that puts income investors in buy mode. Even though auto stocks are highly cyclical and consistently trade at a deep discount to the S&P 500’s future earnings multiple, Ford’s forward P/E of just 5.5x has investors paying attention. are.
Should you invest $1,000 in Pfizer right now?
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sean williams has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Pfizer. The Motley Fool recommends Enterprise Product Partners. The Motley Fool has Disclosure policy.
3 sensational mega-dividend stocks to buy in Q4 (and beyond) Originally published by The Motley Fool
