Introduction
Investing in high yield dividend stocks can be an excellent way to generate passive income and grow your wealth over time. These stocks typically offer higher-than-average dividend payouts, making them attractive to income-focused investors. However, it’s essential to understand the opportunities and risks associated with these investments. In this article, we will analyze four high yield dividend stocks—Altria Group Inc. (MO), Alexander’s Inc. (ALX), Washington Trust Bancorp, Inc. (WASH), and First Of Long Island Corp. (FLIC)—and two high yield dividend ETFs: $XSHD and $VYM. By the end of this article, you will have a clearer understanding of these investment options and their potential impact on your portfolio.
Understanding High Yield Dividend Stocks
Before diving into the specifics of each stock, let’s briefly discuss what makes a high yield dividend stock. These stocks typically offer dividend yields significantly higher than the market average, providing investors with regular income. However, high dividend yield stocks can also come with increased risk, such as financial instability or declining business performance. Therefore, it’s crucial to analyze both the opportunities and risks associated with these stocks.
Lastly, it’s important to understand Dividend Growth vs Dividend Yield and how it can play a huge role in your portfolio’s overall performance
Altria Group Inc. ($MO)
Altria Group ($MO) is a major player in the tobacco industry, specializing in the manufacturing and marketing of cigarette and smokeless tobacco products. Known for its flagship Marlboro brand, Altria operates with a business model focused on high-margin tobacco products and a significant emphasis on generating revenue through brand loyalty and established market presence. The company has a history of strong financial performance, driven by its ability to maintain a loyal customer base and manage costs effectively. In addition to its core tobacco business, Altria has been exploring opportunities in emerging sectors, such as cannabis and reduced-risk products, to diversify its revenue streams and adapt to changing market dynamics.
5Y Total Return – 46.89% or 9.378% annually
Altria Group has delivered a 5-year total return of 46.89%, translating to an annualized return of 9.378%. This impressive performance underscores the company’s ability to generate substantial returns for its shareholders over a relatively long period. The total return metric combines both capital appreciation and dividend payments, offering a comprehensive view of the stock’s performance.
However, it’s important to note that a significant portion of this return is attributable to dividends. With a dividend yield of around 8.24%, the capital appreciation component of $MO’s return is relatively modest. Removing the dividends, $MO’s annual capital appreciation is approximately 1.3%. This indicates that while there hasn’t been much capital growth, the investment has maintained the underlying capital value.
5Y Dividend Growth Rate: 4.14%
The 5-year dividend growth rate for $MO stands at 4.14%. This metric reflects the company’s commitment to increasing its dividend payouts over time, which is a positive sign for dividend investors seeking growing income streams. A steady dividend growth rate also suggests that the company is confident in its future earnings and cash flow. However, it’s worth noting that this growth rate has barely outpaced inflation, potentially putting the purchasing power of your dividends at risk.
Dividend Payout Ratio: 81.45%
Altria Group’s dividend payout ratio is currently 81.45%. The payout ratio indicates the proportion of earnings paid out as dividends to shareholders. A payout ratio above 80% suggests that the company is returning a significant portion of its earnings to shareholders. While a high payout ratio can be sustainable, it also requires the company to maintain strong earnings to continue supporting such payouts.
Dividend Yield: 8.24%
With a dividend yield of 8.24%, $MO offers an attractive income stream for dividend investors. The dividend yield is calculated by dividing the annual dividend payment by the stock price. A high dividend yield like this can be particularly appealing in low-interest-rate environments, providing investors with a reliable source of income.
Conclusion
Altria Group ($MO) stands out among high dividend yield stocks with its strong total return, consistent dividend growth, high payout ratio, and impressive yield. While the high payout ratio requires careful monitoring of the company’s earnings stability, $MO remains a compelling choice for dividend investors seeking substantial income and growth potential.
Alexander’s Inc. ($ALX)
Alexander’s Inc. ($ALX) is a real estate investment trust (REIT) specializing in the acquisition, development, and management of retail and office properties. The company focuses on high-profile properties in prime urban locations, often featuring prestigious tenants. With a strategy centered around acquiring and managing high-quality assets, Alexander’s aims to generate revenue through leasing and property appreciation. Its portfolio includes prominent properties in key metropolitan areas, contributing to its reputation as a significant player in the real estate sector. The company’s business model emphasizes maintaining a high standard of property management and leveraging its strategic location choices to drive value for its investors.
5Y Total Return: -10.49% or -2.09% annually
Alexander’s Inc. has experienced a 5-year total return of -10.49%, translating to an annualized return of -2.09%. This negative performance highlights the challenges the company has faced over the past five years. The total return metric includes both capital appreciation and dividend payments, providing a comprehensive view of the stock’s performance.
It’s noteworthy that the price of the underlying stock has declined by 36% over the last five years. This significant drop means that your underlying capital would have been substantially eroded if you had held this stock without reinvesting dividends.
5Y Dividend Growth Rate: 0%
The 5-year dividend growth rate for $ALX is 0%. Alexander’s Inc. stopped increasing their dividend in January 2018 and has been paying $4.50 per share annually since then. Given the average inflation rate of 3.5%, the purchasing power of these dividends has eroded by approximately 15% over the past five years. This erosion is significant and shows no signs of improving, reflecting poorly on the stock’s ability to provide growing income streams.
Dividend Yield: 7.50%
$ALX offers a dividend yield of 7.5%. While this yield is attractive at first glance, it is important to consider the context provided by the other metrics. The high yield is eroded by the decreasing share prices and the lack of dividend growth mentioned earlier. This combination undermines the appeal of the high yield, making it less beneficial to investors.
Conclusion
Despite the appealing dividend yield, Alexander’s Inc. ($ALX) presents several red flags for potential investors. The significant decline in the stock price over the last five years has led to substantial capital erosion. Additionally, the lack of dividend growth and the consequent erosion of purchasing power due to inflation further diminish the stock’s attractiveness.
Given these factors, it is recommended to avoid investing in this REIT. The combination of a declining stock price, stagnant dividends, and eroded purchasing power makes $ALX a less favorable choice among high dividend yield stocks.
Washington Trust Bancorp, Inc. ($WASH)
Washington Trust Bancorp, Inc. ($WASH) is a regional banking institution based in Rhode Island, offering a range of financial services including personal and commercial banking, investment management, and trust services. The company operates through its wholly-owned subsidiary, Washington Trust Company, providing traditional banking products such as checking and savings accounts, loans, and mortgages. Washington Trust focuses on serving the needs of individuals, businesses, and institutions within its regional market. With a commitment to personalized service and local expertise, the bank aims to build long-term relationships with its clients while fostering growth through prudent financial management and community involvement.
5Y Total Return: -20.57% or -4.11%
Washington Trust Bancorp has experienced a 5-year total return of -20.57%, translating to an annualized return of -4.11%. This negative performance highlights the challenges the company has faced over the past five years. The stock price has declined by 39.49% during this period, indicating a significant erosion of underlying capital.
5Y Dividend Growth Rate: 1.88%
The 5-year dividend growth rate for $WASH is 1.88%. However, the company has not raised its dividend since December 2022. This stagnation suggests potential difficulties in increasing and continuing to pay dividends in the future. Coupled with an average inflation rate of 3.5%, the purchasing power of these dividends is at risk of further erosion.
Dividend Payout Ratio: 82.44%
Washington Trust Bancorp’s dividend payout ratio is currently 82.44%. This ratio indicates the proportion of earnings paid out as dividends to shareholders. The significant increase in the payout ratio over the last two years suggests underlying trouble with revenue and cash flow, raising concerns about the sustainability of future dividends.
Dividend Yield: 6.92%
$WASH offers a dividend yield of 6.92%. While this yield is attractive at first glance, it has decreased nearly 2% due to recent stock price recovery. This reduction, combined with the lack of dividend growth and the high payout ratio, puts the future of the dividend at risk.
Conclusion
Despite the appealing dividend yield, Washington Trust Bancorp ($WASH) presents several red flags for potential investors. The significant decline in the stock price over the last five years has led to substantial capital erosion. Additionally, the stagnation in dividend growth and the high payout ratio further diminishes the stock’s attractiveness.
Given these factors, it is recommended to avoid investing in this stock. The combination of a declining stock price, stagnant dividends, and revenue and cash flow concerns makes $WASH a less favorable choice among high dividend yield stocks.
First Of Long Island Corp. (FLIC)
First of Long Island Corp. ($FLIC) is a community-focused financial institution based in New York, operating primarily through its subsidiary, The First National Bank of Long Island. The company offers a wide range of banking services including personal and business banking, loans, mortgages, and investment services. Its business model centers around providing tailored financial solutions to individuals and small to medium-sized businesses in its regional market. First of Long Island emphasizes strong customer relationships, local market expertise, and personalized service, aiming to deliver financial solutions that meet the unique needs of its community. The bank’s strategy includes expanding its footprint and enhancing its service offerings to support sustainable growth and long-term value creation for its shareholders.
5Y Total Return: -28.56% or -5.71% annually
First of Long Island Corporation has experienced a 5-year total return of -28.56%, translating to an annualized return of -5.71%. This negative performance highlights the significant challenges the company has faced over the past five years. The stock price has declined by 43% during this period, indicating a substantial erosion of underlying capital.
5Y Dividend Growth Rate: 4.31%
The 5-year dividend growth rate for $FLIC is 4.31%. However, the company stopped raising its dividend in October 2022. This stagnation suggests potential difficulties in increasing and continuing to pay dividends in the future. The absence of recent dividend increases is a red flag for investors seeking growing income streams.
Dividend Payout Ratio: 82.84%
First of Long Island Corporation’s dividend payout ratio is currently 82.84%. This ratio indicates the proportion of earnings paid out as dividends to shareholders. The significant increases in the payout ratio over the last year and a half suggest underlying trouble with revenue and cash flow, raising concerns about the sustainability of future dividends.
Dividend Yield: 8.34%
$FLIC offers a dividend yield of 8.34%. While this yield is attractive at first glance, it has steadily increased since July 2021 due to the constant decline in the stock price. This trend raises concerns about the stock’s future performance and the sustainability of its dividends.
Despite the appealing dividend yield, First of Long Island Corporation ($FLIC) presents several red flags for potential investors. The significant decline in the stock price over the last five years has led to substantial capital erosion. Additionally, the stagnation in dividend growth and the high payout ratio further diminishes the stock’s attractiveness.
Given these factors, it is recommended to approach this stock with caution. The combination of a declining stock price, stagnant dividends, and revenue and cash flow concerns makes $FLIC a less favorable choice among high dividend yield stocks.
High Yield Dividend ETFs: $XSHD and $VYM
High Yield Dividend ETFs, such as $XSHD and $VYM, offer investors a diversified way to access high yield dividend stocks. These ETFs provide exposure to a basket of high dividend yield stocks, reducing the risk associated with individual stock investments. These two are common choices amongst dividend investors, but are they healthy option?
Invesco S&P SmallCap High Dividend Low Volatility ETF ($XSHD)
Invesco S&P SmallCap High Dividend Low Volatility ETF ($XSHD) is an exchange-traded fund (ETF) designed to provide investors with exposure to small-cap U.S. stocks that offer high dividend yields and exhibit low volatility. The ETF tracks the S&P SmallCap 600 Low Volatility High Dividend Index, focusing on smaller companies with stable dividend payouts and lower price fluctuations. This investment vehicle aims to combine income generation through dividends with the potential for reduced risk compared to other small-cap equities. By targeting firms with consistent earnings and stable dividend distributions, $XSHD seeks to offer investors a balance of yield and relative stability in the small-cap segment of the market.
5Y Total Return: -11.78% or -2.35% annually
The Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD) has experienced a 5-year total return of -11.78%, translating to an annualized return of -2.35%. This negative performance indicates that the ETF has faced significant challenges over the past five years. When considering high dividend yield ETFs, it’s crucial to evaluate not only the yield but also the total return, as negative returns can erode the value of your investment.
3Y Dividend Growth Rate: -10.91%
The 3-year dividend growth rate for XSHD is -10.91%. This negative growth rate suggests a decline in the dividends paid out by the ETF over the last three years. Investors seeking high dividend yield ETFs should be cautious of those with declining dividend growth rates, as this can impact the long-term sustainability of the dividend income.
Dividend Yield: 7.56%
XSHD offers a dividend yield of 7.56%, which is attractive for income-focused investors. However, it’s important to note that the dividend yield has been as low as 4% in the past. This fluctuation indicates that while the current yield is high, there may be volatility and inconsistency in the dividend payouts. At these levels, there are far safer and better-performing high yield dividend ETFs available on the market that may provide more stable and reliable returns.
Conclusion
The Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD) presents a mixed picture for potential investors. While the high dividend yield is attractive, the negative total return and declining dividend growth rate raise concerns about the ETF’s overall performance and sustainability. Given these factors, it’s recommended to consider other high yield dividend ETFs that offer better performance and stability.
Vanguard High Dividend Yield ETF ($VYM)
Vanguard High Dividend Yield ETF ($VYM) is an exchange-traded fund (ETF) designed to provide investors with exposure to a diversified portfolio of high-yielding U.S. dividend stocks. The ETF tracks the FTSE High Dividend Yield Index, which focuses on companies with a strong track record of paying high dividends. By investing in a broad array of sectors, $VYM aims to offer a reliable income stream through dividends while maintaining diversification to reduce risk. This fund is ideal for investors seeking steady income and potential capital appreciation from established companies with a commitment to returning value to shareholders.
5Y Total Return: 63.71% or 12.74% annually
The Vanguard High Dividend Yield Index Fund ETF (VYM) has experienced a 5-year total return of 63.71%, translating to an annualized return of 12.74%. This impressive performance indicates that the ETF not only provides high dividend yields but also delivers strong capital appreciation. The average price return of 6% further highlights the ETF’s ability to grow your investment while offering a good high yield.
5Y Dividend Growth Rate: 10.35%
The 5-year dividend growth rate for VYM is an outstanding 10.35%. This growth rate significantly outpaces inflation, ensuring that the purchasing power of your dividends increases over time. Investors looking for high yield dividend ETFs will find VYM particularly appealing due to its robust dividend growth, which enhances the overall return on investment.
Dividend Yield: 2.88%
VYM offers a dividend yield of 2.88%. While this yield is lower than some of the other high dividend yield stocks and ETFs on the market, it is backed by strong fundamentals. The combination of a solid total return, impressive dividend growth rate, and reliable yield makes VYM a healthy choice for those seeking dividend ETFs or stocks. This ETF demonstrates that it is possible to achieve both income and capital appreciation, making it a well-rounded investment option.
Conclusion
The Vanguard High Dividend Yield Index Fund ETF (VYM) stands out among high yield dividend ETFs for its strong total return, impressive dividend growth rate, and solid dividend yield. Despite offering a lower yield compared to other high dividend yield stocks, its excellent fundamentals and consistent performance make it an attractive option for investors. VYM is a great choice for those looking to balance income generation with capital appreciation.
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Conclusion
Investing in high dividend yield stocks and ETFs can be an effective strategy for generating consistent income while potentially achieving capital appreciation. Throughout this analysis, we have examined several high dividend yield stocks and ETFs, each offering unique advantages and challenges.
- $MO Stock: Despite a high dividend yield, the modest capital appreciation and barely outpacing inflation raise concerns about the purchasing power of your dividends.
- $ALX Stock: Significant capital erosion, stagnant dividend growth, and a high payout ratio suggest caution.
- $WASH Stock: The declining stock price and stagnant dividends, combined with a high payout ratio, make this a less attractive choice.
- $FLIC Stock: Similar concerns with capital erosion and stagnation in dividend growth raise red flags for potential investors.
When it comes to high yield dividend ETFs:
- Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD): While offering a high dividend yield, the negative total return and declining dividend growth rate suggest that there are safer and better-performing options available.
- Vanguard High Dividend Yield Index Fund ETF (VYM): This ETF stands out with its strong total return, impressive dividend growth rate, and solid fundamentals, making it a reliable choice for investors seeking both income and capital appreciation.
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Overall, while high dividend yield stocks and ETFs can offer attractive income opportunities, it is crucial to carefully analyze their performance metrics, growth rates, and sustainability to make informed investment decisions. By considering both the yield and the underlying fundamentals, investors can select the best high yield dividend stocks and ETFs to meet their financial goals.