These stocks are offering lots of passive income upfront, but investors want to know if they can raise their payouts.
If you want to turn your brokerage account into an income-generating machine, I have some good news. These three dividend stocks offer yields above 7% right now. That’s miles above the average dividend-paying stock in the S&P 500 index, which currently offers a measly 1.6% yield.
These companies are willing to distribute their earnings to shareholders, but that doesn’t mean they want to offer eye-popping dividend yields. Investors have pushed their stock prices down because they aren’t entirely convinced these businesses can continue growing earnings at a healthy pace.
Here’s a look under the covers to see if everyday investors who want lots of passive income from their portfolio should buy these stocks at their beaten-down prices.
AT&T: A 7.2% yield
If you haven’t paid attention to AT&T (T 0.22%) for a while, you might not realize it spun off its cable TV assets in 2021, and last year, its WarnerMedia assets became part of Warner Bros. Discovery. Now that AT&T is purely a telecom business again, investors can reasonably expect steadily growing dividend payments.
AT&T slashed its dividend payout last year to compensate for the loss of its media assets. The good news is that new customers signing up for high-speed internet services could allow it to raise the payout faster than the pace of inflation.
AT&T has added more than 200,000 new fiber-internet subscribers for 13 consecutive quarters. First-quarter AT&T fiber revenue rose 30.7% year over year, which offset declining wireline phone-service sales. Altogether, Q1 revenue rose 1.4% year over year.
Over the past 12 months, AT&T generated $13.6 billion in free cash flow. That’s more than enough to cover an annual dividend commitment currently set at around $7.9 billion. Buying this stock now and holding it for the long run looks like a smart move.
Verizon Communications: A 7.3% yield
Unlike AT&T, Verizon (VZ 0.37%) didn’t try to become a media company or cable TV provider. By focusing on its broadband and fiber-internet offerings, the company has been able to raise its payout for 16 consecutive years.
Verizon’s fiber-internet business only added 67,000 new customers in Q1. Total broadband additions totaled 437,000 in Q1, which was the segment’s best performance in more than a decade.
Verizon stock dipped in April when the company reported Q1 revenue that sank 1.9% year over year. The decline is partly due to the shutdown of its 3G network late last year, which resulted in the removal of around 1.1 million connections.
Verizon’s profitable operation generated $13.0 billion in free cash flow over the past year. That’s an impressive figure, but big dividend raises in the near term seem unlikely. The company needed 84% of the free cash flow it generated over the past year to meet its dividend commitment.
PennantPark Floating Rate Capital: An 11.7% yield
Unlike the telecom stocks on this list, PennantPark Floating Rate Capital (PFLT 0.01%) is a business development company (BDC). These specialized investment vehicles can avoid paying income taxes by distributing at least 90% of earnings to shareholders as a dividend.
Like most BDCs, PennantPark focuses on mid-sized companies that the big banks generally aren’t willing to work with. As its name implies, this BDC usually lends at interest rates that are pegged to the Federal Reserve’s target rate.
At the end of March, PennantPark received an average yield of 11.8% on its debt instruments. That’s 57% higher than the average yield it was receiving a year earlier.
Also at the end of March, there were four companies representing 2% of the portfolio at cost on non-accrual status. This is twice as many non-paying borrowers than it had six months earlier but still not a cause for alarm.
Investors will want to keep an eye open for more late payments. The Federal Reserve has finally paused rate hikes, which should take a lot of pressure off PennantPark’s portfolio companies. I won’t be at all surprised to see more dividend raises from this stock by the end of the year.
Read Next – this $3 stock is the “trade of the year”
Most investors aren’t seeing it, but…
There’s a new bull market that’s quietly raging.
Have you ever opened your cell phone with Face ID?
Paid for something using your credit card?
Jumped in your car and plugged your destination into Google Maps?
If so, you’ve benefited from this “secret megamind” technology…
And Ross Givens has just identified his #1 stock pick to ride this revolutionary tech to a potential windfall gain…
The likes of which haven’t been seen since Microsoft went public in ‘86.
Right now the stock trades for just $3…
But according to Ross’ research, it could soon explode to obscene levels…
And give your retirement a much-needed “booster shot.”
You better move quick — click here for the full details right now…
