5 of the Safest High-Yield Dividend Stocks to Buy for 2024

By | December 19, 2023

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In less than two weeks, Wall Street and investors will welcome a new year. While 2023 has been a banner year for stocks, highlighted by the outperformance of the fast-growing ‘Magnificent Seven,’ it’s dividend stocks that should be on investors’ radar as we prepare to raise the curtain on 2024.

Publicly traded companies that offer their shareholders a regular dividend are almost always profitable and proven on a recurring basis. Moreover, income shares have left non-payers eating their dust. Between 1972 and 2012, companies that initiated and increased their payouts generated annualized returns of 9.5%. That compares with a paltry 1.6% annualized return for listed companies that paid no dividends between 1972 and 2012.

However, not all dividend stocks are cut from the same cloth. As we get ready to enter the new year, five exceptionally safe high-yield dividend stocks (those with yields of at least 4%) stand out as top buys.

A person counting a stack of one hundred dollar bills in his hands. A person counting a stack of one hundred dollar bills in his hands.

Image source: Getty Images.

Verizon Communications: 7.12% return

The first ultra-safe high-yield dividend stock begging to be bought in 2024 is a telecom company Verizon Communications (NYSE: VZ).

While Verizon’s days of high growth are long gone, upgrading its network to handle 5G download speeds will provide a healthy and sustainable improvement to the bottom line. The company’s wireless division gets its biggest margins from data – and data usage should continue to rise as consumers upgrade their wireless devices.

Moreover, Verizon is starting to reap the benefits of its aggressive spending on mid-band spectrum. Thanks to its ability to deliver 5G broadband to the home, Verizon has delivered more than 400,000 net broadband additions in each of the last four quarters. Broadband may not be the growth engine it once was, but it is the perfect tool to encourage its customers to bundle their services. Bundling usually leads to higher margins and better customer loyalty.

Investors would also be wise to look beyond the largely unfounded concerns about lead-coated cables raised in a July report from The Wall Street Journal. Verizon has noted that lead-coated cables make up a small percentage of its current network. Furthermore, any future liability would be determined by the US courts, which could take many years to resolve.

Valued at around eight times full-year earnings, there appears to be a solid bottom and reasonable upside potential for Verizon stock.

Real estate income: 5.37% return

A second super-safe high-yield dividend stock that’s ripe for the picking as we get ready to turn the page to 2024 is Retail Real Estate Investment Trust (REIT). Real estate income (NYSE:O). Realty Income pays dividends monthly and has increased its payout in each of the past 104 quarters.

While the prospect of a recession in 2024 worries some investors, Realty Income’s portfolio of more than 13,000 commercial real estate (CRE) units is built to thrive in virtually any economic climate. More than 90% of Realty Income’s total rental prices are resilient to economic downturns.

More specifically, over a third of the company’s annualized contractual rent comes from supermarkets, convenience stores, dollar stores and drugstores. These are companies that provide basic necessity goods and services and therefore will attract customers no matter how well or poorly the U.S. economy performs.

We also see Realty Income diversifying its CRE portfolio. The company has completed two transactions in the gaming industry in less than two years and is in the process of an acquisition Geest Real Estate Capital in a deal worth $9.3 billion. The latter is an additional deal that will help Realty Income diversify into new industries and become even more resilient to economic downturns.

Real estate income is valued at 13 times consensus 2024 cash flow, representing the lowest cash flow multiple in more than a decade.

Two laboratory technicians analyze a sample using a digital microscope.Two laboratory technicians analyze a sample using a digital microscope.

Image source: Getty Images.

Pfizer: 6.31% yield

The third safe high-yield dividend stock that makes for a genius buy in 2024 is a pharmaceutical company Pfizer (NYSE:PFE). With the exception of a very brief period during the Great Recession, Pfizer’s existing yield of 6.3% has never been higher.

The blow against Pfizer is that the huge increase in sales of COVID-19 vaccines has been largely removed from future revenue and profit forecasts. With the worst of the pandemic in the rearview mirror, attention has turned to Pfizer’s other drugs and its extensive pipeline. As Pfizer’s 2024 expectations failed to impress, shares fell to their lowest level in a decade.

While Pfizer expects earnings to decline by $0.40 per share in the new year as a result of its now completed $43 billion acquisition of cancer drug developer Seagen, it is important to recognize that this is not a recurring loss or is a recurring expense for the company. The combination of these two activities will ultimately result in recurring cost savings and add billions of dollars in annual revenue for Pfizer.

Equally important is the fact that Pfizer’s non-COVID treatments are still growing. Sales for non-COVID products rose 10% in the third quarter, with Pfizer’s Special Care segment leading the way. If the company’s sales surge due to COVID-19 hadn’t occurred, it’s unlikely we’d see such an overreaction to sales and profits returning to their normal (i.e. modest) upward trajectory.

With less than three times expected sales in 2023 and 2024, Pfizer looks like a bargain for patient income seekers.

PennantPark Capital with variable interest: 10.54% return

Safe high-yield dividend stocks can also be found in the small-cap arena! Business Development Company (BDC) PennantPark Capital with variable interest (NYSE:PFLT)which also pays its dividend monthly, is a rock-solid income stock to buy for 2024.

BDCs are companies that invest in the debt and/or equity of mid-market companies. By “middle market” I generally mean unproven micro and small cap companies. In the case of PennantPark, a significant percentage of the portfolio is tied up in debt securities.

The clear benefit of this debt-focused approach is reflected in the returns PennantPark generates. Because most small businesses are unproven, their access to traditional debt and credit markets may be limited or even closed off. As a result, financing agreements are often concluded at interest rates that are well above average. As of September 30, PennantPark’s weighted average return on debt investments was a cool 12.6%!

The key to PennantPark’s success – in case the company’s full name doesn’t give that away – is that 100% of its $906.3 million portfolio of debt securities has floating rates. The Federal Reserve just completed its most aggressive rate hike cycle in four decades. These cumulative rate increases since March 2022 have increased PennantPark’s weighted average debt investment yield by 520 basis points.

Additionally, PennantPark’s management team has done a truly phenomenal job in protecting the company’s invested assets. The average investment size of 131 companies is just $8.1 million, and 99.99% of the company’s debt securities are backed by a first lien. Holders of first lien secured debt are at the front of the line for repayment in the event a borrower seeks bankruptcy protection.

Altria Group: 9.39% return

The last of the safest high-yield dividend stocks to buy for 2024 is none other than tobacco giant Altria Group (NYSE:MO). Altria has increased its payout 58 times over the last 54 years, making it a true Dividend King.

The clear problem for Altria and its peers is that consumers have become aware of the potential dangers of long-term tobacco use. Since the mid-1960s, cigarette smoking rates among U.S. adults have fallen from about 42% to just 11.5% in 2021. A shrinking pool of potential customers has led to a modest decline in overall cigarette shipments for Altria.

However, Altria Group has exceptional pricing power. Tobacco products contain nicotine, an addictive chemical. The strong desire to continue using tobacco products has allowed Altria to implement price increases that often outweigh the decline in cigarette shipments. It also doesn’t hurt that premium brand Marlboro accounts for over 42% of the retail cigarette share, making raising prices relatively easy.

Altria Group is also looking beyond its traditional tobacco lines and shifting sales to smokeless products. For example, in early June it completed its acquisition of electronic vape company NJOY Holdings for $2.75 billion. NJOY has received six marketing orders (MGOs) from the U.S. Food and Drug Administration for its products and devices. These MGOs grant NJOY the right to keep its items on the shelves. The stretched out The majority of e-vapor companies do not have MGOs.

Similar to Verizon, Altria Group’s price-to-earnings ratio of 8 provides a safe floor for years to come, with plenty of upside potential for long-term, income-seeking investors.

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Sean Williams has positions in PennantPark Floating Rate Capital. The Motley Fool has positions in and recommends Pfizer and Realty Income. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

The 5 Safest High-Yield Dividend Stocks to Buy for 2024 originally published by The Motley Fool

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