ETFs
3 High-Yield Stocks/ETFs to Buy in Bulk in July
Investing equally in these three investments would produce a forward dividend yield of over 3.9%.
With the S&P 500 With a staggering 14.5% increase in the first half of 2024 alone, an annual dividend yield of just 4% may seem like a consolation prize at best. But long-term investors know that the benefits of quality dividend stocks and exchange-traded funds (ETFs) come when the stock market is moving sideways or down, not when it’s up.
Three Motley Fool contributors identified investments with regular, growing quarterly payments that can anchor a diversified portfolio during an economic downturn. Kenvue (KVUE 0.38%), American Electric Power (AEP -0.07%), and the VanEck Exchange Traded Fund (ETF) for Oil Refiners (CRAK 0.89%) – three high-yield choices to consider if you want to generate dividend income It doesn’t matter what the economy does.
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An attractive consumer staple for income-oriented investors
Daniel Foelber (Kenvue): Kenvue was spun off from its former parent company, Johnson & Johnson (NYSE: JNJ), in August 2023. The idea was to separate the consumer healthcare business so that J&J could focus on medical devices, diagnostics and pharmaceuticals.
Splits and restructurings coincide with uncertainty, so it’s understandable that shares of Kenvue and Johnson & Johnson have struggled recently. However, Kenvue has all the makings of a great high-yielding dividend stock to buy and hold.
Kenvue is stocked with top brands, from Band-Aid to Tylenol, Listerine, Neutrogena, Aveeno and more. These products tend to sell well regardless of the economy, because changing your mouthwash habits may not be a household’s top budget-cutting priority compared to cutting back on dining out, vacation spending, etc.
Kenvue pays a quarterly dividend of $0.20 per share. As long as it announces an increase by the end of the year, it will retain its publicly traded status. Dividend Kinga designation inherited from J&JDividend Kings are companies that have paid and increased their dividends for at least 50 consecutive years. In April, J&J announced its 62nd consecutive annual increase.
Kenvue’s solid entry-level dividend, combined with share price pressure, has pushed the yield to a respectable 4.4%. This is a much more lucrative source of passive income than consumer staples like Procter & Gamble, Coca-Cola, PepsiCo, Walmartand others.
The main reason not to buy Kenvue is that the company could be going through a period of slow growth, which could lead to a stagnant stock price and an investment thesis focused on dividend payments. After all, Kenvue’s top brands are good, but they’re not protected from competition.
Larger stalwarts like Procter & Gamble, which is worth more than 10 times Kenvue’s, benefit from a wide variety of product categories and a highly sophisticated supply chain. This advantage can make a difference in tough times. Clorox – which has about half the market capitalization of Kenvue – has a more diversified product mix.
Overall, Kenvue stands out as a top buy if you’re focused solely on passive income, but there might be better options if you’re looking for a mix of passive income and upside potential.
Generate regular cash flows and return them to shareholders
Scott Levine (American Electric Power): American Electric Power isn’t one of the sexiest stocks, but it’s not associated with either generative artificial intelligence nor a revolutionary medical treatment. But that doesn’t mean this boring action won’t spark your enthusiasm.
A leader electrical utility With operations across the U.S., American Electric Power appeals to both income and value investors. The stock currently offers a forward dividend yield of 4% and is trading at a discount to its historical valuation, making it a great option for both income and value investors.
With 5.6 million customers across 11 states, American Electric Power has a large customer base, which provides it with stable revenues and predictable cash flows. While American Electric Power can’t afford to raise rates at any time, it is assured of a certain rate of return since it operates as a regulated utility. This gives management a good perspective on future cash flows, which helps it plan for capital expenditures such as infrastructure upgrades and dividends.
For 113 years, American Electric Power has been rewarding its shareholders with a dividend — no small feat — and these aren’t nominal increases, either. From 2010 to 2023, the company raised its dividend to a record high. compound annual growth rate of 5.4%. If you think the company is risking its financial health to appease its shareholders, consider the fact that the company’s payout ratio has averaged 77% over the past 10 years and 68% over the past five years.
American Electric Power shares, which trade at 7.3 times operating cash flow, compared to a five-year average cash flow multiple of 9.6. For those looking to bolster their passive income streams, American Electric Power is a great opportunity for a number of important reasons.
Oil refining stocks have interesting momentum
Lee Samaha (VanEck ETF for Oil Refiners): This ETF offers a 3.4% dividend yield and exposure to something different in the market.
Traditionally, investors view energy stocks as cyclical. This is because energy demand tends to be driven by economic growth, and so energy prices follow suit. That said, there are periods when, for one reason or another, there is a reduction in supply (OPEC cuts, etc.) or there is an excess supply in the market (overinvestment in capacity, etc.), which also has an impact on energy prices.
As for oil refiners, it is fair to say that they are counting on economic growth to encourage demand for refined petroleum products. In addition, a prolonged period of low oil The prices are beneficial for them because they reduce their main production costs. They can also increase demand because relatively low prices for refined petroleum products could encourage increased demand.
So, the ideal time for oil refiners and the VanEck Oil Refiners ETF would be a period of economic growth (to increase final demand) with a relatively low oil price in parallel. Oil refiners also offer a good hedge against oil exploration and production stocks, which would suffer from a decline in oil prices.