TMUS - 5 High Yield Stocks With Steady Dividend Growth And An Attractive Valuation

2023-05-18 18:00:00 ET

Summary

• I consider companies that combine a relatively high Dividend Yield and Dividend Growth Rate to be particularly attractive for dividend income investors.
• The reason being that these companies can help you to significantly increase your extra income in the form of dividends from year to year.
• I will introduce you to 5 companies, that not only have a relatively high Dividend Yield and show Dividend Growth, but are also attractive in terms of Valuation.

Investment Thesis

Companies that provide investors with an attractive Dividend Yield can be excellent investment opportunities for those investors that aim to earn an additional amount of extra income via Dividends. Even more attractive are those types of companies that not only provide your investment portfolio with an attractive Dividend Yield, but also with Dividend Growth. This is the case because it helps you to increase the Dividend you earn at an attractive Growth Rate. Even more attractive for investors are those that also have an attractive Valuation.

Therefore, in this article, I will introduce you to five companies that I consider to be attractive, since they combine an attractive Dividend Yield [FWD] with Dividend Growth while having an attractive Valuation.

In order to make a first pre-selection, I have only included companies that at least fulfil the following requirements:

• Market Capitalization > $5B
• Dividend Yield [FWD] > 4%
• Payout Ratio < 60%
• P/E [FWD] Ratio < 15
• Dividend Growth Rate [CAGR] over the past 3 years > 2%

From this pre-selection, I have selected the five companies that you will find below.

These are the 5 High Yield Dividend Companies that provide your Portfolio with Dividend Growth while having an attractive Valuation:

• The PNC Financial Services Group (PNC)
• Phillips 66 (PSX)
• AbbVie (ABBV)
• U.S. Bancorp (USB)
• Verizon Communications (VZ)

The PNC Financial Services Group

The PNC Financial Services Group is a financial services company that was founded back in 1852. The company has 60,720 employees and operates through the following segments :

• Retail Banking
• Corporate & Institutional Banking
• Asset Management Group segments

At the company’s current stock price of $113.36, it pays shareholders a Dividend Yield [FWD] of 5.38%. At the same time, it has a relatively low Payout Ratio of 40.90%. In addition to that, the company has shown an attractive Dividend Growth Rate [CAGR] of 14.87% over the past 5 years. This Dividend Growth Rate stands 77.86% above the Sector Median.

This mix of an attractive Dividend Yield in combination with a relatively low Payout Ratio and an attractive Dividend Growth Rate, makes PNC Financial Services Group an excellent pick for investors aiming to achieve a relatively high Dividend Yield while increasing this extra income in the form of dividends from year to year.

Below you can find the Consensus Dividend Estimates for the company. The Consensus Yield for 2023 is 5.63%, for 2024 it’s 5.88% and for 2025 it’s 5.97%.

These numbers underline my theory that the company is an excellent pick for dividend income and dividend growth investors.

Moreover, I believe that the company is currently undervalued: its P/E [FWD] Ratio of 8.01 is 4.14% below the Sector Median and 34.86% below its Average over the past 5 years. The company's Price / Sales [FWD] Ratio of 2.01 stands 42.05% below its Average over the past 5 years (3.47).

Below you can find a projection of the company’s Dividend and Yield on Cost assuming that the company was able to raise its Dividend by 8% on Average over the next 30 years. You could potentially achieve a Yield on Cost of 11.43% in 2033, 24.67% in 2043 and 53.26% in 2053.

Phillips 66

Phillips 66 is an energy manufacturing and logistics company that was founded in 1875 and has 13,000 employees. The company operates through the following segments :

• Midstream
• Chemicals
• Refining
• Marketing and Specialties (M&S)

In my opinion, the company has an attractive Valuation: its P/E [FWD] Ratio of 6.57 stands 19.38% below the Sector Median of 8.15, which serve as an indicator that the company is currently undervalued.

Phillips 66 currently pays shareholders a Dividend Yield [FWD] of 4.46%. However, the company is not only attractive for those seeking Dividend Income, but also for those looking for Dividend Growth: Phillips 66 has shown a Dividend Growth Rate [CAGR] of 21.55% over the past 10 years and of 7.18% over the past 5 years. At the same time, the company has a relatively low Payout Ratio of only 18.47%, which clearly indicates that there is room for dividend enhancements.

Below you can find the Consensus Dividend Estimates for Phillips 66: The Consensus Yield is 4.47% for 2023, 4.67% for 2024 and 4.94% for 2025.

These Consensus Dividend Estimates further underline that the company is an excellent choice for those investors seeking dividend income and dividend growth.

Below you can find the Seeking Alpha Dividend Grades for the company, which further underlines its attractive Dividend: it receives an A rating for Dividend Growth, and an A- for Dividend Safety.

AbbVie

At AbbVie’s current stock price of $146.02, it pays shareholders a Dividend Yield [FWD] of 4.02%. Moreover, the company has shown a Dividend Growth Rate [CAGR] of 30.61% over the past 10 years. AbbVie’s Payout Ratio of 44.16% further indicates that there is plenty of room for future dividend enhancements from which shareholders can benefit when investing over the long term (instead of speculating over the short term).

AbbVie’s current Dividend Yield [FWD] of 4.02% lies significantly above the one of other companies from the Health Care Sector such as Amgen (AMGN) (3.66%), Gilead Sciences (GILD) (3.84%), Johnson & Johnson (JNJ) (2.96%) or Novartis ([[NVS]], [[NVSEF]]) (3.39%).

Several metrics further indicate that the company is currently undervalued: its P/E Non-GAAP [FWD] Ratio of 13.05 lies 32.02% below the Sector Median of 19.19. The company's Price / Cash Flow [TTM] Ratio of 10.43 stands 1.57% below its Average over the past 5 years.

In addition to that, AbbVie’s Revenue Growth Rate [CAGR] over the past 5 years is superior to those companies mentioned before: while AbbVie’s 5 Year Revenue Growth Rate [CAGR] stands at 13.89%, Amgen’s is 2.69%, Gilead Sciences is 1.84%, Johnson & Johnson’s is 4.11% and Novartis is 1.07%.

Below you can find the Dividend Yield Grade for AbbVie, which confirms the company’s attractive Dividend.

Below you can find a projection of AbbVie’s Dividend and Yield on Cost when assuming a Dividend Growth Rate of 5% for the following 30 years (I have made a conservative projection, since the company’s Dividend Growth Rate [CAGR] over the past 3 years stands at 8.70%).

U.S. Bancorp

U.S. Bancorp has shown 12 Consecutive Years of Dividend Growth and 20 Consecutive Years of Dividend Payments, thus indicating that it’s an excellent choice for those wanting to earn an extra income in the form of dividends while increasing this amount annually.

At the company’s current stock price of $29.43, it pays shareholders a Dividend Yield [FWD] of 6.59%. Several metrics further indicate that the U.S. bank should be able to deliver your investment portfolio with attractive results when it comes to Dividend Growth: the company has shown a Revenue Growth Rate [FWD] of 8.74% and an EBIT Growth Rate [FWD] of 10.73%. In addition to that, the U.S. bank’s Dividend Growth Rate [CAGR] over the past 10 years stands at 9.31%, further strengthening my belief that it’s an attractive pick for those investors that want to combine a relatively high Dividend Yield with Dividend Growth.

U.S: Bancorp’s Dividend Yield [FWD] of 6.59% is significantly superior to the one of Citigroup (C) (4.49%), Bank of America (BAC) (3.25%), Wells Fargo (WFC) (3.20%) and JPMorgan (JPM) (2.98%).

In addition to that, U.S. Bancorp has also shown a higher Revenue Growth Rate: while U.S. Bancorp’s Revenue Growth Rate [FWD] stands at 8.74%, Citigroup’s is 3.00%, Bank of America’s is 3.94%, Wells Fargo’s is 0.21% and JPMorgan’s is 6.39%.

In my opinion, the bank is currently undervalued. U.S. Bancorp's P/E [FWD] Ratio of 6.70 stands 45.90% below its Average over the past 5 years (12.39) and 19.76% below the Sector Median (8.35).

Below you can find the Seeking Alpha Dividend Grades, which underline the bank’s solid Dividend: U.S. Bancorp is rated with an A- in terms of Dividend Consistency, with a B+ in terms of Dividend Safety and Dividend Yield, while it gets a C- for Dividend Growth.

Verizon

When compared to the companies mentioned before, Verizon is the one that provides investors with the lowest Dividend Growth (its Dividend Growth Rate [CAGR] over the past 5 years stands at 2.04%; however, its Dividend Yield [FWD] of 6.94 is the highest out of this selection of 5 dividend paying companies).

In believe that Verizon is currently undervalued, which is supported by the fact that its P/E [FWD] Ratio of 7.85 stands 59.04% below the Sector Median (19.17) and 29.60% below the company's Average P/E [FWD] Ratio over the past 5 years (11.16).

Below you can find the Consensus Dividend Estimates for Verizon: the Consensus Yield lies at 7.00% for 2023, 7.14% for 2024 and 7.30% for 2025.

Moreover, Verizon has shown 18 Consecutive Years of Dividend Growth and 22 Consecutive Years of Dividend Payments. This further strengthens my confidence that Verizon is an excellent pick for dividend income investors. In my opinion, the company’s Dividend is relatively safe, which is underlined by its relatively low Payout Ratio of 51.74%.

When compared to competitors such as AT&T (T) and T-Mobile (TMUS), Verizon has the highest Return on Equity: while its Return on Equity stands at 24.59%, T-Mobile’s is at 5.58% and AT&T’s is -5.13%. This serves to demonstrate Verizon’s superiority in terms of Profitability.

When comparing Verizon’s 60M Beta Factor of 0.34 with the one of T-Mobile (0.55) and AT&T (0.77), it is indicated that Verizon is the one with the lowest risk factors attached. Verizon’s 60M Beta Factor clearly indicates that by adding the company, you can reduce the volatility of your investment portfolio.

Therefore, I consider Verizon to not only be attractive for dividend income and dividend growth investors, but also for those investors seeking a defensive stock in order to reduce portfolio volatility.

Conclusion

Companies that combine a relatively high Dividend Yield and Dividend Growth Rate as well as an attractive Valuation, can result in being excellent investments: they help you to earn an extra amount of income from today while raising the amount year over year. They also help you to potentially achieve an attractive Yield on Cost when investing over the long term.

Moreover, an attractive Valuation helps ensure that the price you pay for your investment is not too high, thus contributing to increasing the probability of obtaining an attractive compound annual rate of return for your investment.

The five companies that I have presented in this article fulfill these criteria and can help you to earn a significant extra income in the form of dividends while increasing this amount annually.

Furthermore, this investment strategy that is focused on a mixture between dividend income and dividend growth can help you to focus less on the high volatility of the stock market: it helps you to instead focus on the dividend while ensuring that there is no need to sell some of your stocks in order to generate capital gains.

This way you can increase your wealth steadily while at the same time avoiding speculations over the short term.

Author’s Note: I would appreciate hearing your opinion on my selection of high Dividend Yield companies that have an attractive Valuation. Do you already own or plan to acquire any of the picks? Which are currently your favorite high dividend yield companies that combine dividend income with dividend growth?

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