Chevron Corporation should be at the top of any dividend investor's short list right now, considering that it pays its investors an enviable 3.7% yield. But as good as that is, the oil and gas company isn't the only stock that's pushing the boundaries of dividend yields.
GlaxoSmithKline (NYSE: GSK), Brookfield Infrastructure Partners (NYSE: BIP), and AT&T (NYSE: T) all cut bigger checks than Chevron, and each have a compelling reason for dividend investors to give them serious consideration. Let's take a closer look.
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A top pharma stock worth considering
George Budwell (GlaxoSmithKline): With a current yield of 5.75%, British pharma stalwart GlaxoSmithKline easily offers one of the richest payouts within its large-cap peer group. And Glaxo's sky-high yield even exceeds that of that the dividend aristocrat Chevron at present.
Glaxo's monstrous yield does come with a big catch, though. The pharma titan's high yield, after all, directly stems from the company's inability to restock its aging product portfolio with new high-value growth products -- especially in the pharmaceutical space, where its top-selling asthma medication, Advair, has been gradually on decline for some time now.
As a result, Glaxo's shares have now shed nearly a quarter of their value over the past three years, and this downward trend has only been accelerating heading into 2018. In fact, Glaxo's recent talk of doling out up to $10 billion for Pfizer's consumer healthcare unit stoked fears among investors that the drugmaker may be forced to suspend its top flight dividend altogether.
The good news is that Glaxo does have a number of green shoots, so to speak, on the pharma and vaccine sides of its business that could save its dividend, and perhaps usher in a new era of strong top-line growth. As a prime example, the company just grabbed a key regulatory approval for its two-drug HIV therapy known as Juluca that appears primed to be a big winner from a sales standpoint. And its newly approved shingles vaccine, Shingrix, should also eventually achieve blockbuster status as well.
All told, Glaxo's rather enticing dividend could indeed evaporate if the company's newly installed management does expand deeper into the consumer healthcare space. But there are some compelling reasons to believe this exceptional yield may be spared from the chopping block as well.
A dividend champion in the making
Neha Chamaria (Brookfield Infrastructure Partners): As a Dividend Aristocrat, Chevron's popularity among income investors isn't unwarranted. However, there are other stocks that are not only cutting higher yields than Chevron but also giving income investors encouraging dividend goals to look forward to.
Consider Brookfield Infrastructure Partners, an asset managing company that acquires high-quality, distressed assets across key sectors like utilities, transport, energy, and communications, and turns them around profitably.
Now, Brookfield doesn't boast a dividend track record like Chevron since the company was established as late as 2008. Brookfield's dividend yield of 4% is also only slightly higher than that of Chevron's, but you just have to see the following chart to understand how the stock has trumped the oil giant in the past decade, thanks to its rapidly growing dividends.
Brookfield has done a tremendous job in the past decade, growing its funds from operations more than ten-fold. I consider Brookfield a gold mine for income investors: It has grown its dividends at a compounded average rate of 12% since 2009 and has a long-term goal of 5% to 9% annual dividend growth. It's difficult to get such visibility from Chevron's dividends.
That means as a Brookfield shareholder, you can not only expect high dividend yields of around 4%, but also watch your dividends grow year after year. When you factor in the relative resilience of its business compared to Chevron's, Brookfield's dividend checks could easily be much bigger in the long run.
The telecom Dividend Aristocrat
Chris Neiger (AT&T): Dividend investors should be absolutely in love with AT&T's 5.5% dividend yield, not to mention the fact that the company has increased its dividend for 32 consecutive years.
The telecom gian has built out a connectivity empire that includes its core wireless business, DirectTV services, and its wireline services that all brought in a total of $39.7 billion in the third quarter 2017. AT&T has managed to keep pace with wireless rival Verizon and hold its own as the nation's second-largest carrier. AT&T is also looking ahead to the coming demand for 5G wireless; it has already conducted tests of the technology and plans on launching a commercial 5G network by 2020 or 2021.
AT&T has more opportunities outside of wireless as well. The company's $108 billion bid for Time Warner would give the company HBO, CNN, and all of Warner Bros.'s content -- and allow AT&T to keep pace with Verizon as it focuses its attention on more content offerings as well.
The Department of Justice (DOJ) is fighting that deal right now on concerns that AT&T could have too much pricing power when it controls bundled content and how that content is delivered to customers.
But even if the DOJ ends up stopping AT&T's purchase of Time Warner (or restricts part of the deal), the carrier is already so firmly established in its wireless business and its other home connectivity services that investors have little to worry about. The company's current wireless position and future opportunities in 5G, as well as its expanding customer base with DirecTV (it added 300,000 net customer additions in the third quarter), should be enough for investors to give AT&T strong consideration. Add to all of that the fact that AT&T's shares are trading at less than 12 times the company's forward earnings, and AT&T looks like a solid bet for dividend investors -- and with an enviable yield to boot.
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Chris Neiger has no position in any of the stocks mentioned. George Budwell owns shares of Pfizer. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Brookfield Infrastructure Partners and Time Warner. The Motley Fool has a disclosure policy.