ALIZF - If I Could Only Buy 2 High Dividend Yield Companies In December 2023 - One Yields Almost 10%

2023-12-21 18:00:00 ET

Summary

• I will introduce you to two currently attractive investment options. Both exhibit an attractive Valuation, significant competitive advantages, and financial health.
• While one of these companies presently provides investors with a Dividend Yield [FWD] of 9.48%, the other offers 4.82%.
• Due to their ability to provide investors with a mix of dividend income and dividend growth, I see both companies as potential candidates for The Dividend Income Accelerator Portfolio.
• I plan to include them in the coming months once a broader portfolio diversification has been achieved, so as to minimize company-specific and sector-specific concentration risk.

Investment Thesis

Today, I will present you with two high dividend yield companies that, for a number of reasons, might be attractive investment choices for your investment portfolio.

Both Allianz SE ( OTCPK:ALIZY )( OTCPK:ALIZF ) and Altria Group, Inc. ( MO ) not only exhibit significant competitive advantages, but they also hold a strong position within their respective industries and presently have an attractive Valuation. In addition to that, both companies merge dividend income with dividend growth.

Altria and Allianz's attractive Dividend Yield [FWD] of 9.48% and 4.82%, as well as their 5 Year Dividend Growth Rate [CAGR] of 5.85% and 5.72%, indicate that they could be excellent options for those investors seeking to combine dividend income with dividend growth.

Their attractive Valuation is underlined by different financial metrics and characteristics: Allianz's P/E [TTM] Ratio presently stands at 12.03, which is only slightly above the Sector Median (10.18), to which it should be rated with a premium due to holding an excellent position within the Multi-Line Insurance Industry in combination with its strong competitive advantages. These characteristics underscore that Allianz presently has a fair Valuation. Altria's current Valuation (P/E [FWD] Ratio of 9.04) is significantly below the Sector Median (P/E [FWD] Ratio of 19.04), indicating that the company is presently undervalued.

Before I introduce the selected companies to you in greater detail, I would like to reiterate the general benefits of investing in high dividend yield companies.

General Benefits of Investing in High Dividend Yield Companies

• The Generation of Income: Dividend paying companies bring you the enormous benefit of helping you to produce income. This provides you with much higher financial flexibility and offers the enormous benefit of not having to sell some of your stocks when you might need some extra money at a time when the market is not in your favor.
• Significant Reduction of the Volatility and Risk Level of Your Overall Investment Portfolio: Companies that pay a relatively high and particularly sustainable dividend, tend to come attached to a lower risk level, particularly when compared to growth companies, thus contributing to reducing the volatility and overall risk level of your investment portfolio (their lower risk level can be reflected in their lower Beta Factor).
• Psychological Investor Benefits in Times of a Stock Market Decline: In times of high volatility and declining stock markets, receiving dividend payments can bring you a psychological effect that can lead you to keep the positions in your portfolio to continue benefiting from dividend payments, acting like a business owner, instead of a stock market trader. This behavior can help you to significantly increase your wealth over the long term.

Allianz

Founded in 1890, Allianz is a multi-line insurance company based in Germany. The company exhibits an Aa2 credit rating from Moody's, which underscores its enormous financial health and attractiveness for long-term investors.

Among Allianz's competitive advantages are its financial health (EBIT Margin [TTM] of 9.78% and Return on Common Equity of 15.20%), strong brand image, broad product portfolio (it provides property-casualty insurance, life/health insurance, and asset management products and services worldwide), and its strong expertise in risk management.

Allianz's Current Valuation

In terms of Valuation, it can be highlighted that Allianz currently has a P/E GAAP [TTM] Ratio of 12.03, which stands slightly above the Sector Median of 10.18.

However, due to the company's significant competitive advantages in combination with its financial health, I believe that Allianz should be rated with a premium in comparison to its competitors. Therefore, I believe that Allianz is presently at least fairly valued.

This opinion is further underscored by the company's Dividend Yield [TTM] of 4.82%, which is in line with its average from the past 5 years (which is 4.90%).

Allianz's Dividend and its Combination of Dividend Income and Dividend Growth

Presently, Allianz pays a Dividend Yield [FWD] of 4.82%. At the company's current price level, it boasts a Free Cash Flow Yield [TTM] of 3.79%, highlighting its appealing risk/reward profile.

In addition, it can be highlighted that Allianz has shown a Dividend Growth Rate [CAGR] of 5.72% over the past 5 years, indicating that the company is an appealing investment option for those investors that aim to combine dividend income with dividend growth.

The Projection of Allianz's Dividend and its Yield on Cost

The graphic below illustrates the projection of Allianz's Dividend and Yield on Cost when assuming an Average Dividend Growth Rate of 5% for the following 30 years (which is in line with the company's 5 Year Dividend Growth Rate [CAGR] of 5.72%).

The chart below shows that you could reach a Yield on Cost of 7.58% by 2033, 12.35% by 2043, and 20.12% by 2053, further underscoring my theory that the company is an attractive choice for investors seeking to combine dividend income with dividend growth.

Altria

Altria manufactures, and sells smokeable and oral tobacco products in the United States. Among the company's competitive advantages are its strong Profitability (EBITDA Margin [TTM] of 60.92% and A3 credit rating from Moody's), its economies of scale, broad distribution network and pricing power, as well as its broad product portfolio of strong brands (Marlboro, the company's leading brand, is presently listed as the 44th most valuable brand in the world, according to Brand Finance ).

Altria's Current Dividend

At this moment in time, Altria pays a Dividend Yield [FWD] of 9.48%, which can significantly enhance income generation. This Dividend Yield becomes even more attractive to investors when considering the company's 5-year Dividend Growth Rate [CAGR] of 5.85% in combination with its modest Payout Ratio of 76.77%. It is further worth highlighting that Altria exhibits a 5-Year Average EPS Diluted Growth Rate [FWD] of 5.75%.

Collectively, these financial metrics indicate that the company's dividend is relatively secure, though not guaranteed.

Altria's Current Valuation

As things stand, Altria has a P/E [FWD] Ratio of 9.01, which stands 52.69% below the Sector Median of 19.04, and 26.47% below its average over the past 5 years (12.25). Both metrics suggest that Altria is presently undervalued.

The company's undervaluation is further evidenced by its Price/Sales [FWD] Ratio of 3.56, which stands 13.16% below its average from the past 5 years.

Altria's undervaluation is further evidenced by a Dividend Yield [TTM] of 9.19%, standing slightly above its average Dividend Yield [TTM] from the past 5 years (which is 7.58%).

Altria's current Valuation and attractive Dividend Yield [FWD] of 9.48% have played a significant role in me selecting it as one of my two top dividend yield companies to consider investing in this month.

Altria's Profitability

Altria is an excellent choice in terms of Profitability, which is evidenced by its EBITDA Margin [TTM] of 60.92%, standing significantly above the Sector Median of 11.26%. Moreover, the company's Net Income Margin [TTM] of 42.60% lies well above the Sector Median of 4.90%, further highlighting its excellent Profitability metrics.

Altria According to the Seeking Alpha Analysts and the Wall Street

Below you can find the results of the Seeking Alpha Analyst Rating. According to this rating, Altria is presently rated as a buy. The company received a strong buy rating from three analysts, a buy rating from three analysts, and a hold rating from three analysts.

Altria Compared to Its Competitors

When comparing Altria to competitors such as British American Tobacco p.l.c. ( BTI ) and Philip Morris International Inc. ( PM ), it can be stated that Altria has shown higher dividend growth rates and a higher Profitability.

While Altria's 5 Year Dividend Growth Rate [CAGR] and its EBIT Margin [TTM] stand at 5.85% and 59.67%, the same are 2.45% and 48.10% for British American Tobacco, and 2.94% and 35.34% for Philip Morris.

However, it can be highlighted that British American Tobacco presently has the lowest Valuation among the three companies: while British American Tobacco currently exhibits a P/E [FWD] Ratio of 7.21, Altria's is 9.01, and Philip Morris' is 18.67.

The graphic below illustrates the past 12-month performance of these three competitors, highlighting that British American Tobacco has shown the weakest performance (-19.56%) when compared to Altria (-0.70%) and Philip Morris (-1.05%). This has significantly contributed to British American Tobacco's current low Valuation.

Risk Analysis

Conducting a comprehensive risk analysis is crucial for investors to limit the downside risk of their investment portfolio and thereby increase the likelihood of favorable investment results.

Risk Analysis - Allianz

Key Risk Factors for Allianz Investors to Consider

• Market Risk: Market Risk can be related to interest rate risk, inflation risk, equity risk, credit spread risk, currency risk and real estate risk. All of which can have significant negative impacts on the financial results of Allianz, representing risk factors for you as an investor.
• Credit Risk: Allianz's credit risk profile originates from multiple sources: their investment portfolio, their credit insurance, and their external reinsurance. Credit risk primarily arises when a counterparty is unable or unwilling to fulfill contractual obligations.
• Operational Risk: Allianz's operational risk particularly refers to losses in the insurance or asset management business, which can have adverse effects on the company's business results and represent additional risk factors for Allianz investors.

Reducing Portfolio Risk When Investing in Allianz for Improved Investment Outcomes: The Case for a 5% Allocation Limit and for a Long-Term Investment Approach

To reduce company-specific concentration risk and therewith the overall risk level of your investment portfolio, I suggest investing a maximum of 5% of your overall investment portfolio in Allianz.

I believe that the risk factors mentioned above can indeed have a significant impact on the company's financial results, particularly in the short term.

For this reason, if you decide to invest in Allianz, I suggest a long-term investment approach with a minimum holding period of 7 years. This allows you to significantly benefit from the steadily increasing dividend payments of the company while helping you invest with a reduced risk level.

Risk Analysis - Altria

Key Risk Factors for Altria Investors to Consider

• Limited Growth Perspective: Altria operates in an industry that faces declines in smoking rates, indicating limited growth perspectives. Despite these challenges, its strong customer loyalty positions the company to offset this impact through product price enhancements.
• Regulatory Risks: The Tobacco Industry faces stringent regulation. Additional regulatory measures could negatively affect Altria's financial performance, representing an additional risk factor that investors should consider.
• Taxation Risks: Tobacco products already incur significant taxation , and a potential increase in taxes on tobacco-related products could have a strong negative effect on the company's financial performance, representing an additional risk factor for Altria investors.

Reducing Portfolio Risk When Investing in Altria for Improved Investment Outcomes: The Case for a 5% Allocation Limit for Altria and a 10% Allocation Limit for Companies from the Tobacco Industry

To mitigate the downside risk of your investment portfolio, I generally suggest limiting the Altria position to a maximum of 5% of your overall investment portfolio.

In addition to that, I suggest limiting the exposure to companies from the Tobacco Industry to a maximum of 10% of your overall portfolio. This strategy helps to decrease the risks related to regulations and taxations, as well as reducing the industry-specific concentration risk.

Maximizing Investor Benefits when Investing in Allianz and Altria

In case you decide to include Allianz and/or Altria in your investment portfolio, you could benefit most when incorporating both companies into a well-balanced and broadly diversified investment portfolio that merges dividend income with dividend growth.

Such a portfolio should include both high dividend yield companies (such as Allianz and Altria), but also companies that focus on dividend growth.

Below you can find a list of 10 high dividend yield companies and a list of 10 dividend growth companies that I currently consider to be attractive to invest in:

My Top 10 High Dividend Yield Companies For December 2023

My Top 10 Dividend Growth Companies For December: Growth Up To 16%, Yields Reaching 5%

With the construction and implementation of The Dividend Income Accelerator Portfolio , I am following an investment approach that merges dividend income with dividend growth. This approach aims to lower risk levels for investors, thereby enhancing the probability of achieving a favorable Total Return over the long term.

Why Allianz is a Candidate for Potential Inclusion into The Dividend Income Accelerator Portfolio

Due to Allianz's significant competitive advantages, its financial health (Aa2 credit rating from Moody's), attractive Valuation (P/E GAAP [TTM] Ratio of 12.03) and its mix of dividend income (Dividend Yield [FWD] of 4.82%) and dividend growth (5 Year Dividend Growth Rate [CAGR] of 5.72%), the company is definitely an attractive candidate for potential inclusion into The Dividend Income Accelerator Portfolio.

However, the Financials Sector already represents a high proportion of The Dividend Income Accelerator Portfolio, currently accounting for 33.07% (when allocating Schwab U.S. Dividend Equity ETF to the companies it is invested in).

For this reason, I plan to add Allianz to the portfolio once I have further decreased the proportion of the Financials Sector on the overall investment portfolio. This strategy is aimed at maintaining a reduced sector-specific concentration risk while lowering the overall risk level of the portfolio.

Why Altria is a Candidate for Potential Inclusion into The Dividend Income Accelerator Portfolio

Like Allianz, I see Altria as a strong candidate for potential inclusion into The Dividend Income Accelerator Portfolio. This is due to the company's combination of dividend income (Dividend Yield [FWD] of 9.48%) and dividend growth (5 Year Dividend Growth Rate [CAGR] of 5.85%), its strong competitive advantages, and excellent position within the Tobacco Industry, in addition to its strong Profitability.

The main reason why I still haven't included Altria in The Dividend Income Accelerator Portfolio is because of the portfolio's investment in Schwab U.S. Dividend Equity ETF, through which the portfolio already has a stake in the company.

I plan to include the company after achieving a broader diversification, thus ensuring that Altria will not become a disproportionally high share of the overall portfolio.

Conclusion

I consider both Altria and Allianz to be attractive investment choices. This is due to their strong competitive advantages, dominant position within their respective industries, their financial health (A3 and Aa2 credit rating from Moody's), attractive Valuations and the fact that they provide investors with a mix of dividend income and dividend growth.

Altria currently offers investors a Dividend Yield [FWD] of 9.48% and exhibits a 5 Year Dividend Growth Rate [CAGR] of 5.85%. The same metrics are 4.82% and 5.72% for Allianz.

However, due to the risk factors that come attached to an investment in both companies, I suggest limiting the Altria and Allianz positions in relation to the overall portfolio to a maximum of 5% each.

Additionally, I suggest not investing more than 10% of your investment portfolio into the Tobacco Industry, particularly due to regulatory risk factors and the limited growth perspective of this sector.

I believe that you could benefit most when including both Altria and Allianz in an investment portfolio that merges dividend income with dividend growth. This is the philosophy behind The Dividend Income Accelerator Portfolio, which I am currently developing, implementing, and documenting on Seeking Alpha.

I have plans to include both Altria and Allianz in The Dividend Income Accelerator Portfolio once a broader portfolio diversification has been achieved. This is to minimize both company-specific and sector-specific concentration risks, thereby increasing the potential for positive investment results for investors who adopt the portfolio's investment philosophy.

Author's Note: Thank you for reading! I would appreciate hearing your thoughts on this investment article on Allianz and Altria. Which high dividend yield companies are you consider ing investing in during this month of December?

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