You can find a boatload of dividend stocks with super-high yields. I wouldn't touch many of those stocks with a 10-foot pole, though. Those high yields reflect beaten-down stocks that aren't likely to come back anytime soon in a lot of cases.
However, there are several high-yield dividend stocks that I'd buy right now with no major qualms. Here's why AT&T (NYSE: T), Cisco Systems (NASDAQ: CSCO), and AbbVie (NYSE: ABBV) stand at the top of that list.
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AT&T currently claims a tremendous dividend yield of 5.11% -- the highest of the three stocks. The telecommunications giant uses nearly 92% of earnings to fund the dividend program. That's a pretty high level, but I'm not too concerned about the dividend being in any jeopardy for several reasons.
First, AT&T's cash flow is solid. Over the last 12 months, the company generated free cash flow of $15.8 billion. Second, the company's commitment to paying out dividends is exemplary. AT&T has increased its dividend for 32 consecutive years, landing it a spot among the elite group of stocks known as Dividend Aristocrats.
Perhaps the most important reason I like AT&T, though, is that the company could soon acquire Time Warner (NYSE: TWX) if regulators approve the deal. While there are some risks with the massive acquisition, scooping up Time Warner would instantly make AT&T a major owner of content with the HBO, TNT, TBS, and CNN cable networks and Warner Bros. studio. If the deal isn't blocked, it could position AT&T very well for future growth.
Cisco Systems' dividend yields 3.66%. While that's lower than AT&T, it's still quite attractive. The technology company also appears to be in great shape to boost its dividend in the future: Cisco's payout ratio is only 54%. The company has also hiked its dividend every year since 2011 when it first initiated its dividend program.
It's true that the Cisco of today doesn't generate the dazzling growth the company did in the past. Its core networking-hardware business has a lot more competition than it used to. In particular, Cisco faces a threat from software-defined networking, which relies on generic "white box" routers and switches using open-source software.
However, Cisco is developing its own software-defined networking solutions. The company is also rapidly diversifying into software services, especially in cybersecurity. With billions of devices likely to be connected as the Internet of Things becomes more of a reality, Cisco should be able to both survive and thrive in the years to come.
AbbVie's dividend yield stands at 3.58% -- only slightly behind Cisco. The big biotech shouldn't have any problems keeping the dividends flowing well into the future. AbbVie uses less than 60% of earnings to cover its dividends. Like AT&T, the company is also a Dividend Aristocrat, with a 44-year streak of consecutive dividend increases (including the period in which AbbVie was part of parent Abbott Labs).
Earnings growth shouldn't be a problem for AbbVie, either. Revenue from its top-selling product, autoimmune disease drug Humira, continues to climb steadily. Sales for cancer drug Imbruvica are soaring. AbbVie also boasts one of the top drug pipelines in the biopharmaceutical industry.
The biggest knock against AbbVie is that competition will hurt sales of Humira sooner or later. However, AbbVie thinks it can fend off rivals in the U.S. through 2022 by aggressively defending its patents for the drug. By then, several of the company's promising pipeline candidates should be generating plenty of money to help offset potential falling sales for Humira.
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