Verizon is yielding 7% despite increasing that rate for 19 consecutive years.
Upbound is yielding about 9%, as parent company Rent-A-Center tries to diversify its offering.
Both companies have their baggage, but the high payouts are sustainable in the short term.
10 stocks we like better than Verizon Communications ›
There’s never been a better time to gear up for dividend stocks. Fixed income rates are falling, but there are many quality companies paying large distributions. Let’s go over some of these obvious investments that are also in my income-generating portfolio.
I have shares in Verizon Communications(NYSE: VZ) and upward(NASDAQ:RCII). These two high-yield stocks have their risks. You don’t get business returns above 7% without accepting risks. However, I think they are both dividend stocks worth buying right now.
Image source: Getty Images.
There’s good news, bad news, and great news when it comes to Verizon. The good news is that the wireless carrier giant, which serves 146.1 million consumer and business accounts, pays a handsome 7% yield at current levels. This is the highest dividend among the 30 stocks that make up the Dow Jones Industrial Average (DJINDICES: ^DJI).
The bad news is that this is not a source of revenue growth. Verizon has failed to surpass 6% in annual revenue growth in each of the past 16 years, including four years of small declines. Despite investing in infrastructure improvements and rolling out 5G technology to its customers, Verizon’s profits rarely exceed inflation in any given year. Analysts don’t expect Verizon to take off the accelerator pedal any time soon, and are looking for revenue to rise between 1% and 3% over the next four years.
Fortunately, the good news is a longer list. Let’s start with the quarterly distributions. When Verizon raised its payout in September, it extended its streak of annual increases to 19 years. Verizon is good for the money. Its normalized net margin has been above 10% for 11 consecutive years. Finally, a double-digit achievement for Verizon!
Verizon also has an attractive price here. You can invest in Verizon for less than 9x trailing earnings and 8x forward earnings. Now there There are some single-digit figures that may excite you. The smartphone is not going away. Fortunately, Verizon doesn’t look like it’s going away anytime soon either. The same goes for generous distributions. Its dividend payout ratio is only 58%, so its streak of increases can be expected to extend to 20 years later this year.
The highest dividend payer on this list is also, unsurprisingly, the riskiest. You’ll have to decide if the obstacles are worth Upbound’s astonishing 8.8% return. The company, formerly known as Rent-A-Center until it changed its corporate name three years ago, has been a failure. The stock has fallen nearly 40% over the past year, so those big quarterly payouts aren’t making much of a difference to overall performance.
Upbound was a rebrand in early 2023, not a mandate for action direction. The business is still run by Rent-A-Center, the furniture, electronics and appliance rent-to-own specialist with 1,700 locations across North America. The chain has been in business since 1973, helping people who have little funds or credit fill their homes. However, it has also strategically expanded its reach in recent years. In 2021 it acquired Acima, a technology company that helps other companies manage lease-to-own options. It also features Brigit, a well-rated financial app for people looking to improve their credit with over 12 million users.
The biggest risk for Upbound is that its customers are naturally on the lower end of the credit score spectrum, a group that will take the biggest hit in the economic downturn. You’ll want to repeat that last line several times before moving forward with a potential purchase. The advantage of Upbound is that it continues to grow. Revenue has increased by single digits and its profitability is also increasing. It has raised its dividend five times since reinstating payments in late 2019. Upbound has also beaten expectations every quarter over the past year. The stock has been held back by fears of a recession, but that could already be factored into the share price at today’s entry point.
The upside trades at 4 times adjusted earnings, and analysts are forecasting double-digit growth in the bottom line in the coming year. If this seems too good to be true, you’re right. Like many of its clients, Upbound is juggling some debt. However, even if we go by enterprise value rather than market cap, the forward P/E ratio is just under 10. It’s a risk I’m willing to take, but know that it’s a substantial consideration for a turnaround opportunity.
Before you buy Verizon Communications stock, consider this:
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Rick Munarriz has positions at Sirius XM, Upbound Group and Verizon Communications. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
2 Obvious Dividend Stocks to Buy Right Now was originally published by The Motley Fool
