If you are chasing higher dividend yields in this low interest rate environment, you don't have many choices. After a strong recovery in the stock markets since the pandemic crash, the average dividend yield offered by companies is around 2%.
But if you want to beat that return while staying in a safe zone, you can invest in the high-quality, blue chip stocks included in the . Today we look at the three highest-yielding stocks represented in this index to analyze whether they are a good fit for your income portfolio.
1. Chevron
Dividend Yield: 5.1%
Quarterly Payout: $1.34
Market Cap: $205 Billion
While the best time to buy quality stocks in the current cycle is certainly behind us, some of these names still offer a bargain to investors hungry for yield.
US oil giant Chevron (NYSE:) still offers returns that are more than double the average return of the S&P 500. With the global economy reopening and demand for energy products increasing, Chevron is in a much better position position to cover the disbursements of his money generation rather than borrowing from the market.
Chevron Week Chart.
Of the five super-majors, Chevron has the best and strong prospects for share buybacks. The California-based company said in March it should generate $25 billion in free cash on top of its dividend through 2025 if it stays at $60. The price of Brent oil rose above $75 a barrel for the first time since April 2019.
But know that if you choose an oil company for your income portfolio, you have to prepare for a bumpy ride. Global commodities markets have just experienced the most turbulent year in their history due to the pandemic. While the successful rollout of vaccines is bringing economic activity close to normal in many developed countries, the long-term outlook for oil demand remains uncertain.
An uneven recovery in fuel consumption, a lack of investment in new oil fields and the disruption caused by the transition to low-carbon energy are likely to keep these markets volatile.
2. Verizon Communications
Dividend Yield: 4.52%
Quarterly Payout: $0.63
Market Capitalization: $234 billion
Telecom operators are considered reliable dividend stocks. No matter which direction the economy is headed, the Internet and wireless connections are among the last items consumers cross off their must-have lists. This predictability and stickiness increase their income for long-term investors.
In this space, Verizon Communications (NYSE:) is a good choice, especially for retirees. The company has a solid track record of rewarding investors through dividends, which have risen since 2007. The company currently pays $0.63 per share per quarter, which translates to an annualized return of 4.5%.
Verizon Weekly Chart.
CEO Hans Vestberg is cutting back on investments in high-risk areas, such as media, to focus fully on network expansion, on a wave of new 5G technology that offers a quantum leap in speed, capacity and connectivity. Last month, the company agreed to sell its media division, including AOL and Yahoo (NASDAQ:) to Apollo Global Management (NYSE:) for $5 billion.
The company recently told investors that its 5G network will reach 100 million people by the end of the year and provide coast-to-coast coverage by 2024. That expansion will help the carrier double the number to 4% by 2024.
A disadvantage of investing in telecom companies is that they do not offer much room for capital gains. These stocks are defensive in nature and help retirees in times of economic hardship.
3. IBM
Dividend Yield: 4.47%
Quarterly Payout: $1.64
Market Capitalization: $130 billion
International Business Machines (NYSE:) is another Dow stock that offers a higher dividend yield. The 109-year-old tech giant has been increasing its payouts for 25 years in a row.
Even with that remarkable earnings performance, IBM stock is a risky gamble because of the business challenges the company faces. The Big Blue has been slow to restructure at a time when demand for its large-frame servers and other hardware has declined and its customers have begun to store data on cloud services offered by rivals such as Amazon (NASDAQ:) and Microsoft (NASDAQ:). ).
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But there are some clear signs that this New York-based company is succeeding in making its turnaround, making its 4.5% dividend yield attractive to long-term investors. IBM recorded its first in 11 quarters in April, driven by demand for cloud services. IBM also reported that Red Hat, which it bought in 2019 for $34 billion in revenue, grew 17% in the first quarter.
IBM Weekly Chart.
Arvind Krishna, who took over as CEO from Ginni Rometty last April, focuses on artificial intelligence and the cloud to revive growth. Krishna has reorganized the company's operations around a hybrid cloud strategy, which allows customers to store data on private servers and on multiple public clouds.
But these gains can quickly evaporate if the company cannot compete in the highly competitive cloud computing market, where giants such as Amazon and Microsoft have already made significant strides.
Bottom Line
The above stocks offer investors a number of choices from different sectors of the economy to achieve higher returns in this low interest rate environment. Their strong balance sheets, long history of rewarding investors and solid positions in their industries make them less risky for the income-seeking investors.
