ETFs
3 High-Yield Stocks/ETFs to Buy in Bulk in July
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 (NYSE: KVUE), American Electric Power (NASDAQ: AEP) and the VanEck Exchange Traded Fund (ETF) for Oil Refiners (NYSEMKT: CRAK) – Three High-Yield Picks 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&J. Dividend 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.
The story continues
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 – offers a more diversified product line.
Overall, Kenvue stands out as a great 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 most sexy stocks, but it’s not associated with generative artificial intelligence or a revolutionary medical treatment. But that doesn’t mean this boring stock won’t get you excited.
American Electric Power, one of the largest electricity providers operating across the country, appeals to both income-seeking and value-seeking investors. Currently, the stock 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-seeking 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 dividends, which is no small feat, and these are not nominal increases either. From 2010 to 2023, the company has increased its dividend at a compound annual growth rate of 5.4%. If you think the company is risking its financial health to appease its shareholders, consider 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.
Oil refiners are counting on economic growth to boost demand for refined petroleum products. In addition, a prolonged period of low oil prices is beneficial to them because it reduces their key production costs. It 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.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue and Walmart. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a position in Kenvue and Walmart. disclosure policy.
3 High-Yield Stocks/ETFs to Buy in Bulk in July was originally published by The Motley Fool