These are truly unprecedented times, and the spread of coronavirus disease 2019 (COVID-19) is squarely to blame.
As of this time last week, there were more than 181,000 confirmed cases of coronavirus worldwide, which had led to the deaths of over 7,100 people. While the spread of COVID-19 has slowed dramatically in Wuhan (the suspected origin of this illness), within the China's Hubei province, it's grown rapidly elsewhere, including in the United States, where positive coronavirus diagnoses quintupled in a week (ending March 16).
In recent weeks, stringent mitigation measures have been implemented by countries around the world in an effort to save lives. Unfortunately, these measures (ranging from recommended social distancing to total lockdown) are expected to wreak havoc on the U.S. and global economy in the short run. This is why we've been witnessing record-breaking volatility in the stock market.
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Coronavirus has made these high-yield dividend stocks too cheap to ignore
However, this unprecedented volatility has also paved the way for income-seeking investors to buy a number of high-quality dividend stocks on the cheap. As a reminder, dividend stocks are almost always profitable, time-tested business models, meaning they're poised to survive whatever short-term disruption is thrown their way.
Furthermore, dividend stocks have run circles around their non-dividend-paying peers over the long run. According to a study from J.P. Morgan Asset Management, publicly traded companies that initiated and grew their payouts between 1972 and 2012 averaged an annual gain of 9.5% per year. That's almost 500% better than the 1.6% average annual return for publicly traded companies that didn't pay a dividend over this same time frame.
Below you'll find seven high-yield dividend stocks paying out a minimum of 5% annually that income investors should strongly consider buying now.
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1. AT&T: 6.2% yield
To begin with, businesses rarely come more predictable than what telecom and streaming giant AT&T (NYSE: T) brings to the table. That's because AT&T's wireless division provides the lion's share of the company's margins, and its wireless customers are on subscription-based plans. With smartphones becoming a basic-need good, it's highly unlikely that we'd see consumers cancelling their plans. If anything, social distancing is liable to increase data consumption, which is a good thing for AT&T.
This is also a time for AT&T's streaming offerings to shine. Assets like HBO Max, when combined with the CNN, TBS, and TNT networks that were acquired with the Time Warner buyout, give AT&T a stronger lure to court new consumers.
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2. Altria Group: 8.4% yield
If we've learned anything over the years, it's that nicotine's addictive nature lends to highly predictable cash flow for tobacco behemoth Altria Group (NYSE: MO). Even with adult-use cigarette smoking rates hitting an all-time low, Altria has been able to pass along price hikes on its premium Marlboro brand to offset shipment weakness.
What's more, Altria has done an incredible job of mitigating cigarette shipment weakness in the U.S. by reducing its operating expenses and repurchasing its own stock. Remember, buying back stock lowers the number of shares a publicly traded company has outstanding, which can have a positive lift on earnings per share. With Altria also focused on tobacco alternatives, it has all the tools needed to continue delivering a superior dividend to investors.
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3. Broadcom: 6.5% yield
Although Broadcom (NASDAQ: AVGO) has already warned Wall Street that coronavirus will cause it to miss its previous guidance, this is no time to head for the sidelines. With COVID-19 unlikely to have any long-term impact on top-tier tech businesses, investors should instead focus on Broadcom's leading position as a supplier of wireless chips for next-generation smartphones, and connectivity and access chips for use in data centers. We're in the midst of a major tech upgrade cycle for smartphones, and storage needs are only climbing for enterprises, putting Broadcom's products squarely in focus.
This is also a company that's delivered some of the most impressive dividend growth in the entire tech space. Between December 2010 and its most recently quarterly payout, Broadcom's dividend has grown by more than 4,500% to $3.25 a quarter. Expect this generous shareholder return policy to continue.
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4. Innovative Industrial Properties: 6.8% yield
The marijuana industry has been a veritable disaster for more than a year now, but real estate investment trust Innovative Industrial Properties (NYSE: IIPR) is the exception. IIP acquires medical marijuana growing and processing sites, then leases them out for an extended period of time. As of last week, it owned 53 properties in 15 states, with a weighted-average lease length of 15.9 years and an average return on invested capital of 13.2%. Or, in layman's terms, it'll have a complete payback on its invested capital in around 5.5 years, with everything else being gravy.
Furthermore, with the federal government nowhere near approving a cannabis banking reform measure, Innovative Industrial Properties is liable to remain a go-to source of sale-leaseback agreements for U.S. multistate operators.
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5. IBM: 6.1% yield
Technology stalwart IBM (NYSE: IBM) has been stuck in a sales downdraft for more than six years as shrinking legacy revenue has weighed on its top-line. However, the long-awaited turnaround may be here. IBM's acquisition of Red Hat in 2019, compounded with organic cloud services growth, pushed its total cloud revenue up 14% last year (after adjusting for currency moves and divestments). The cloud now makes up 27.5% of IBM's sales, which is great news for a segment with gross margin of nearly 77%.
IBM also continues to make strides to get the most it can from its legacy operations. Despite shrinking sales, IBM's cost-cutting efforts have pushed margins for legacy segments higher, with IBM netting a perfectly healthy $11.9 billion in free cash flow in 2019. Make no mistake about it, IBM's payout can head even higher.
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6. U.S. Bancorp: 5% yield
I get that the banking industry isn't exactly the favorite of Wall Street with the Federal Reserve slashing its federal funds rate 150 basis points this month and likely cutting the net-interest-income-earning potential of banks across the board. But when it comes to superior return on assets (ROA), U.S. Bancorp (NYSE: USB) is at the top of the list among big banks.
Whereas most large banks were lured into riskier investment opportunities prior to the financial crisis over a decade ago, U.S. Bancorp has stuck to its guns and focused on the bread-and-butter of banking profitability -- loan and deposit growth. When paired with the company's efforts to reduce noninterest expenses and push lower-cost interactions, such as digital banking and mobile apps, it's no wonder why U.S. Bancorp's ROA is continually the highest.
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7. Mobile TeleSystems: 13.1% yield
As the icing on the cake -- and the biggest yield of the bunch -- income investors should consider picking up shares of Russian telecom Mobile TeleSystems (NYSE: MBT). In the midst of a tech upgrade cycle fueled by the initial rollout of 5G networks (and the ongoing rollout of 4G and LTE to outlying cities in Russia), we're liable to see high-margin data usage pick up big-time over the coming years. And, as a reminder, Russia has some of the highest wireless saturation rates in the world, making it the perfect country to see a sizable boost from infrastructure upgrades.
Mobile TeleSystems is also branching off beyond telecom. The addition of MTS Bank and its push into cloud-service operations provides new channels of growth that should perform particularly well over the long run.
10 stocks we like better than AT&T
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Sean Williams owns shares of AT&T. The Motley Fool owns shares of and recommends Innovative Industrial Properties. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
