Dividend shares might get extra consideration as rates of interest fall.
Dividend shares might quickly get a better look from traders. That is as a result of the Federal Reserve is predicted to chop charges on Wednesday, starting a brand new cycle of decrease charges, which is able to deliver down Treasury yields and rates of interest on financial savings accounts.
That course of makes dividend shares extra engaging. Dividend shares are more likely to transfer larger as bond yields fall as a result of bond traders will rotate again into dividend shares in the hunt for yield.
For those who’re in search of dividend shares, a great place to begin your search is the S&P 500. Let’s check out the three highest-yielding dividend shares within the broad-market index in the present day.
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1. Walgreens Boots Alliance (dividend yield: 11.1%)
For those who’re a dividend investor, it is necessary to grasp the distinction between a high-yield inventory and a yield entice, and Walgreens Boots Alliance (WBA 0.44%) appears like a traditional instance of a yield entice.
Shares of the pharmacy chain are down a whopping 65% yr thus far, declining steadily because it’s struggled with a lack of COVID-related income, narrowing margins in its pharmacy enterprise, an ongoing decline within the retail enterprise, and challenges associated to the misguided acquisition of VillageMD, a main care clinic, which has led to important losses within the enterprise.
Based on standard metrics, Walgreens now appears filth low cost, buying and selling at a ahead P/E of simply above 3, however that is primarily based on adjusted earnings. Nonetheless, that probably displays investor fears over extra write-downs and falling income within the coming quarter. In reality, the corporate has taken impairment fees of $13.6 billion this yr, largely associated to its acquisition of VillageMD.
It additionally had a damaging free money circulation of $1.5 billion this yr.
Walgreens may very well be compelled to chop its dividend once more, and the corporate appears more likely to be faraway from the S&P 500 quickly as its market cap falls beneath $8 billion. The inventory is greatest averted.
2. Altria (dividend yield: 7.9%)
Altria Group (MO -2.32%) was one of many top-performing shares out there for roughly 50 years by 2017, however that is modified extra just lately as smoking charges proceed to say no and the corporate has struggled to evolve with new tastes.
Its $12.8 billion funding in JUUL Labs imploded and it additionally misplaced most of its funding in hashish grower Cronos Group.
Extra just lately, the corporate acquired NJOY for publicity to the vape market.
Tobacco shares surged by the spring as traders appeared to sense a turning level as next-gen merchandise went mainstream. Plus, bond traders could also be getting ready themselves for the rotation into dividend shares.
Altria is a strong dividend payer with a yield of seven.9%, and the corporate has raised its dividend 59 instances within the final 55 years.
I am nonetheless skeptical of the corporate’s capability to develop long-term given the decline in cigarettes, however you might actually do worse than Altria for those who’re in search of a high-yield dividend inventory as its 7.9% yield is well-funded and dependable.
3. Ford Motor Firm (dividend yield: 5.6%)
Like Altria, Ford Motor Firm (F 0.93%) has been a frontrunner in its business for generations, however the inventory has struggled lately as the corporate has misplaced cash in worldwide markets, watched demand for electrical autos (EVs) plateau, and appears caught rising slowly in a mature business.
Shares tumbled following its second-quarter earnings report as the corporate expects a $5 billion loss within the EV division, and income fell within the second quarter, due partially to stress within the EV division and slowing demand.
The excellent news is that Ford’s different divisions, its combustion car division, and its industrial autos, stay extremely worthwhile.
For the total yr, Ford expects an adjusted working revenue of $10 billion to $12 billion and adjusted free money circulation of $7.5 billion to $8.5 billion. That makes the inventory look low cost, buying and selling at simply 4 instances its adjusted working revenue and 5 instances its adjusted free money circulation.
Ford now pays a dividend yield of 5.6%. If the corporate can profit from the expansion of hybrid autos, the inventory might transfer larger from right here. Whereas Ford has underperformed the marketplace for years, it appears like an honest purchase on the present value, particularly for those who’re in search of a high-yield dividend inventory.
