RY:CC - My Top 10 High Dividend Yield Stocks To Invest In May 2023

2023-04-28 13:00:00 ET

Summary

• I will introduce you to 10 companies that provide investors with a relatively high Dividend Yield and which I consider attractive to invest in.
• On Average, the selected companies have a Dividend Yield [TTM] of 5.43%. Moreover, they have shown an Average Dividend Growth Rate [CAGR] of 7.90% over the past 5 years.
• The picks are also attractive in terms of Valuation (with a P/E [FWD] Ratio of 9.81 on Average), have strong financials and have significant competitive advantages.

Investment Thesis

Companies that provide an attractive Dividend Yield can offer an investor a number of benefits: one of the most important benefits in my opinion, is the fact that you are able to care less about the price fluctuations of the stocks you are invested in.

Regardless of whether the stock market is going up or down at a particular moment in time, investing in companies that generate an additional income in the form of dividends will still bring you benefits.

Furthermore, you don't have to sell your stocks in order to generate an income from your investments. This also means that you're not dependent on trying to find the best moment to sell your stocks in order to achieve capital gains.

To help you find companies that can generate an extra income, I have selected 10 companies that provide you with a relatively high Dividend Yield and which I currently consider to be attractive. Besides the relatively high Dividend Yield, these companies also have an attractive Valuation, are financially healthy, have significant competitive advantages and have shown dividend growth over the past years.

Below, I will describe the selection process in more detail. Since I have already described this process in a previous article , if you are already familiar with it you can skip the following section written in italics.

First Step of the Selection Process: Analysis of the Financial Ratios

In order to identify companies with a relatively high Dividend Yield [FWD], I use a filter process to make a pre-selection. From this pre-selection, I will later choose my top 10 high Dividend Yield companies of the month. To be part of this pre-selection of high Dividend Yield stocks, the companies should fulfil the following requirements:

• Market Capitalization > $10B
• Dividend Yield [FWD] > 2.5%
• Payout Ratio < 80%
• P/E [FWD] Ratio < 30
• EBIT Margin [TTM] > 5% or Net Income Margin [TTM] > 5%
• Moody's credit rating: at least B

In the following, I would like to specify why I have chosen the metrics mentioned above in order to select my top 10 high Dividend Yield stocks of the month.

A Market Capitalization of more than $10B contributes to the fact that the risks attached to your investments are lower, since companies with a higher Market Capitalization tend to have a lower volatility than companies with a low Market Capitalization.

A Payout Ratio of less than 80% contributes to the fact that the risk of a Dividend cut in the near future tends to be lower. A Payout Ratio of more than 100%, for example, would imply that the company pays a higher Dividend per Share than it has generated Earnings per Share. This would be a strong indicator that the Dividend could be cut soon and that the share price could drop significantly as a result. This would imply a strong risk factor for investors. Therefore, this filter contributes to lowering the risk level.

A P/E [FWD] Ratio of less than 30 implies that the price you pay for the company is not extraordinarily high, thus filtering out those that have stock prices in which high growth expectations are priced in. High growth expectations imply strong risks for investors, since the stock price could drop significantly. Again, the filtering process helps us to reduce the risk so that we are more likely to make an excellent investment decision.

An EBIT Margin [TTM] or Net Income Margin [TTM] of more than 5% and a Moody's credit rating of at least B are indicators of a company's Financial Strength.

Second Step of the Selection Process: Analysis of the Competitive Advantages

In a second step, the companies' competitive advantages (for example: brand image, innovation, technology, economies of scale, etc.) are analyzed in order to make an even narrower selection. I consider it to be particularly important for companies to have strong competitive advantages in order to stand out against the competition in the long term. Companies without strong competitive advantages have a higher probability of going bankrupt one day, thus representing a strong risk for investors to lose their invested money.

Third Step of the Selection Process: The Valuation of the Companies

In the third step of the selection process, I will dive deeper into the Valuation of the companies.

In order to conduct the Valuation process, I use different methods and criteria, for example, the companies' current Valuation as according to my DCF Model, the expected compound annual rate of return as according to my DCF Model and/or a deeper analysis of the companies' P/E [FWD] Ratio. These metrics should serve as an additional filter to only select companies that currently have an attractive Valuation, which helps you to identify companies that are at least fairly valued.

The Fourth and Final Step of the Selection Process: Diversification Over Industries and Countries

In the fourth and final step of the selection process, I have established the following rules for choosing my top picks: in order to help you diversify your investment portfolio, a maximum of two companies should be from the same industry. In addition to that, there should be at least one pick that is from a company that is based outside of the United States, serving as an additional geographical diversification.

New Companies Compared to the Previous Month of April

• AT&T ( T )
• Deutsche Post ( OTCPK:DPSTF , OTCPK:DPSGY )
• Pfizer (NYSE: PFE )
• Vale (NYSE: VALE )
• VICI Properties (NYSE: VICI )

My Top 10 High Dividend Yield Stocks to Invest in for May 2023

• Altria (NYSE: MO )
• AT&T
• Deutsche Post
• Johnson & Johnson (NYSE: JNJ )
• Pfizer
• Suncor Energy (NYSE: SU )
• U.S. Bancorp (NYSE: USB )
• Vale
• Verizon Communications Inc. (NYSE: VZ )
• VICI Properties

Overview of the 10 Selected high Dividend Yield Companies

Source: The Author, data from Seeking Alpha

Altria

Altria is among my favorite stocks when searching for a pick that provides shareholders with a combination of a relatively high Dividend Yield [FWD], a Payout Ratio that is not too high (in order to avoid an increased risk of a dividend cut) and an attractive Dividend Growth Rate.

Altria has shown a Dividend Growth Rate [CAGR] of 7.96% over the past 10 years, which I consider to be very attractive for investors when taking into consideration that the company currently offers a Dividend Yield [FWD] of 8.06%.

Altria's enormous Profitability is proven by its Gross Profit Margin [TTM] of 68.56%, which is 117.93% above the Sector Median of 31.46% as well as its Net Income Margin [TTM] of 27.86%, which stands 684.50% above the Sector Median of 3.55%.

Below you can find the Seeking Alpha Profitability Grade, which not only underlines the company's strength when it comes to Profitability, but also demonstrates its excellent position within the Tobacco Industry.

Moreover, the company has a P/E [FWD] Ratio of 9.28 at this moment of writing. This lies 55.25% below the Sector Median and confirms that the company is undervalued, thus making it a great choice to be part of this list of high dividend yield companies to invest in.

AT&T

Within the past 12-month period, the share price of AT&T has been down by 9.38%. This has contributed to the company having an attractive Valuation today.

Various metrics confirm that the company is currently undervalued: its current P/E [FWD] Ratio stands at 7.55, which is 59.45% below the Sector Median of 18.62 and 34.92% below its Average P/E [FWD] Ratio over the past 5 years. The company's Price / Sales [FWD] Ratio of 1.03 is 16.55% below the Sector Median (1.23) and 16.07% below its Average from over the past 5 years (1.22).

Below you can find the Seeking Alpha Valuation Grades that underline the company's currently attractive Valuation.

It can be highlighted that, at this moment in time, AT&T provides shareholders with an attractive Dividend Yield [FWD] of 6.33%, making the company a great pick to be part of this list of high dividend yield companies.

Deutsche Post

Founded in 1490, Deutsche Post is a mail and logistics company that operates globally. The company is based in Bonn, Germany, and currently has a Market Capitalization of $57.84B.

At Deutsche Post's current stock price, it provides investors with a Dividend Yield [TTM] of 3.93% and a Dividend Yield [FWD] of 4.05%. Moreover, the company has shown a Dividend Growth Rate [CAGR] of 14.90% over the past 5 years. All of these metrics strengthen my confidence that Deutsche Post is an excellent pick not only for dividend income, but also for dividend growth investors. The same is confirmed when looking at the company's Payout Ratio of only 44.34%, which I consider to be relatively low.

With a P/E [TTM] Ratio of 10.07, I believe that Deutsche Post's Valuation is attractive, since it stands 47.89% below the Sector Median of 19.32.

In terms of Growth, the company has been ahead of its peer group in recent years: while Deutsche Post has shown a Revenue Growth Rate [CAGR] of 9.34% over the past 5 years, UPS's (NYSE: UPS ) has been 8.85% and FedEx's (NYSE: FDX ) 7.72%.

Below you can find the Seeking Alpha Dividend Yield Grade, which confirms that the company is an excellent fit for this list of high dividend yield companies.

Johnson & Johnson

Johnson & Johnson is a worldwide operating health care company founded back in 1886. The company currently has 152,700 employees and is based in New Brunswick, NJ.

Johnson & Johnson's current Dividend Yield [FWD] of 2.91% is not extraordinarily high, but I consider the Dividend to be very safe, since its Payout Ratio stands only at 44.44%. The company's solid Dividend is also underlined by the fact that it has shown 60 Consecutive Years of Dividend Growth. Moreover, its Dividend Growth Rate 10Y [CAGR] stands at 6.36%, indicating that the company is also attractive for dividend growth investors.

In addition to the above, the company's Valuation is currently attractive: its P/E [FWD] Ratio of 21.33 stands 26.27% below the Sector Median of 28.93. At the same time, its P/E [FWD] Ratio is below competitors such as Novo Nordisk ( NVO ) (P/E [FWD] Ratio of 32.53), Eli Lilly and Company (NYSE: LLY ) (49.10) or Novartis (NYSE: NVS ) (22.18), indicating that Johnson & Johnson is currently undervalued.

Below you can find a projection of Johnson & Johnson's Dividend and Yield on Cost when assuming that the company would be able to increase its Dividend with an Average Dividend Growth Rate [CAGR] of 6% over the next 30 years (my assumption is based on the company's Dividend Growth Rate [CAGR] of 6.11% over the past 5 years).

Investing in Johnson & Johnson at its current stock price, would imply that you could achieve a Yield on Cost of 5.16% in 2033, 9.24% in 2043 and 16.55% in 2053, once again indicating that the company is a great pick for dividend income and dividend growth investors.

Pfizer

The share price of Pfizer has been down 18.47% within the past 12-month period, which has contributed to the company having an attractive Valuation at this moment in time: Pfizer has a P/E [FWD] Ratio of 14.03, which stands 51.50% below the Sector Median of 28.23. At the same time, it lies 3.78% below its Average P/E [FWD] Ratio over the past 5 years (14.58). These metrics underline the company's currently attractive Valuation.

Pfizer pays a Dividend Yield [TTM] of 4.03% and a Dividend Yield [FWD] of 4.11%. Its current Dividend Yield [FWD] stands 195.80% above the Sector Median of 1.39%, which, once again, confirms my thesis that the company has an attractive Valuation at this moment in time.

In addition to that, the company is in strong financial health, which is proven by its EBIT Margin [TTM] of 38.87%, which lies clearly above the Sector Median of -1.56%.

Below you can find the Seeking Alpha Profitability Grade, which, once again, demonstrates the company's strength when it comes to Profitability while, at the same time, underlying its strong competitive position within the Pharmaceuticals Industry.

Suncor Energy

Suncor Energy currently offers a Dividend Yield [FWD] of 5.00%. This relatively high Dividend Yield is even more attractive when considering the company's relatively low Payout Ratio of 22.01% and its relatively high Dividend Growth Rate: Suncor Energy has shown a Dividend Growth Rate 5Y [CAGR] of 8.00% and a Dividend Growth Rate 10Y [CAGR] of 11.32%.

Below you can find the Consensus Dividend Estimates for Suncor Energy: the Consensus Yield stands at 5.13% for 2023, 5.36% for 2024, and 6.35% for 2025. These metrics serve as additional indicators that the company provides investors with an attractive mix between a relatively high Dividend Yield and Dividend Growth, thus making the company an excellent fit to be part of this list.

Moreover, the company's Valuation is appealing for investors, since its P/E [FWD] Ratio of 7.59 currently stands 15.61% below the Sector Median of 8.99.

U.S. Bancorp

The stock price of U.S. Bancorp has been down by 36.60% within the past 12-month period. At its current stock price, shareholders receive a Dividend Yield [FWD] of 5.86%, which contributed significantly to the bank being added to this list of high dividend yield companies to invest in.

The bank is not only appealing for investors when it comes to dividend income, but also when it comes to dividend growth. Proof of this is the bank's attractive Dividend Growth Rate [CAGR] of 10.00% from over the past 5 years.

Furthermore, I consider U.S. Bancorp to be undervalued at this moment of writing: the bank has a P/E [FWD] Ratio of 7.58, which is 39.14% below its Average P/E [FWD] Ratio over the past 5 years while serving as a clear indicator that the bank is currently undervalued.

In terms of Growth, the bank has been ahead of its peer group: while U.S. Bancorp has shown a Revenue Growth Rate [FWD] of 8.85%, JPMorgan's (NYSE: JPM ) is 6.19%, Royal Bank of Canada's (NYSE: RY ) is 3.29%, Citigroup's (NYSE: C ) is 3.05% and Wells Fargo's is 0.19% (NYSE: WFC ).

Below you can find Consensus Dividend Estimates for U.S. Bancorp, which once again confirm that it's an attractive pick for investors seeking dividend income and dividend growth.

The graphic below shows the projection of U.S. Bancorp's Dividend and Yield on Cost when assuming an Average Dividend Growth Rate of 5% for the following 30 years (my assumption is based on the company's Dividend Growth Rate [CAGR] of 5.24% over the past 3 years). This implies that you could achieve a Yield on Cost of 9.84% in 2033, 16.04% in 2043 and 26.12% in 2053, when investing in the company at its current stock price.

Vale

Founded in 1942, Vale is a Brazilian based company that produces and sells iron ore and iron ore pellets . The company has 74,316 employees and a current Market Capitalization of $65.89B.

At its current stock price of $14.14, the company pays its shareholders a Dividend Yield [FWD] of 4.91%. Vale's Dividend Growth Rate 5Y [CAGR] of 30.92% stands 288.42% over the Sector Median of 7.96%, which serves as an indicator that it not only provides your investment portfolio with an attractive Dividend Yield, but also with Dividend Growth.

Moreover, I consider Vale's Valuation to be particularly attractive right now: the company has a P/E [FWD] Ratio of 4.91, which stands 63.95% below the Sector Median of 13.62 and 30.91% below its Average P/E [FWD] Ratio over the past 5 years.

The Seeking Alpha Valuation Grade that you can find below, supports my theory that Vale's Valuation is currently particularly attractive.

Verizon

At Verizon's current stock price of $36.91, the company's Dividend Yield [TTM] stands at 7.00% and its Dividend Yield [FWD] at 7.04%.

In my opinion, this relatively high Dividend Yield [FWD] of 7.04% is even more attractive when considering the company's relatively low Payout Ratio of 50.00%. This is because it can serve as an indicator that investors should not expect a dividend cut in the coming years and that they could benefit from (slowly) increasing dividend payments.

In terms of Valuation, I also consider Verizon to be an excellent choice. This is proven by its P/E [FWD] Ratio of only 8.05, which stands 56.78% below the Sector Median of 18.62. Furthermore, its current P/E [FWD] Ratio is 28.09% below its Average P/E [FWD] Ratio of 11.19.

Below you can find the Seeking Alpha Dividend Yield Grade, which confirms that Verizon is a great choice to be part of this list of high Dividend Yield companies to invest in.

VICI Properties

Based in New York, VICI Properties is a real estate investment trust that was founded in 2016. The company owns gaming, hospitality and entertainment destinations.

VICI Properties currently pays a Dividend Yield [FWD] of 4.70%. Moreover, the company has shown a Dividend Growth Rate 3Y [CAGR] of 9.04%, which is clearly above the Sector Median of 1.11%. These metrics indicate that VICI Properties could help you to raise the Average Dividend Yield of your portfolio as well as its Average Dividend Growth Rate.

The Seeking Alpha Factor Grade underlines that the company is an excellent fit for investors at this moment in time: it receives an A+ rating for Growth, an A rating for both Profitability and Momentum and an A- for Revisions. In terms of Valuation, the company gets a B-.

Conclusion

In today's article, I have presented a list of companies that currently pay shareholders an attractive Dividend Yield and which can help you to generate an additional income.

You can benefit significantly from investing in these kinds of companies when investing over the long term due to the dividend payments they provide.

I only selected companies that have a relatively high Dividend Yield (the 10 selected picks have an Average Dividend Yield [TTM] of 5.43%), are attractive in terms of Valuation (underlined by their Average P/E [FWD] Ratio of 9.81), and that have strong financials (proven by their relatively high margins).

In addition to that, all these picks have significant competitive advantages over their competitors. Moreover, all of the selected companies have shown significant Dividend Growth in the past years (they have an Average Dividend Growth Rate [CAGR] of 7.90% over the past 5 years).

All of these metrics make me believe that you can benefit significantly from the dividend payments these companies provide you with when investing over the long term.

Author's Note: I would love to hear your opinion on my selection of high Dividend Yield companies to buy in May 2023. Do you already own or plan to acquire any of the picks? Which are currently your favorite high dividend yield companies?

For further details see:

My Top 10 High Dividend Yield Stocks To Invest In May 2023