3 High-Yield Dividend Stocks to Buy Now and 2 to Avoid Despite the Yield
The Motley Fool ·
Key points
- PepsiCo yields about 4.4% at roughly $141 per share and has raised its dividend for 54 consecutive years, making it a Dividend King. The quarterly payout is $1.48, up 4% this year, and management aided growth with an 11-year beverage-deal renewal with Taco Bell in October, signaling competitive position and funding for expansion as Q3 revenue grew 5.6% to $25.3 billion.
- Best Buy yields near 4% with a 21-year dividend raise streak. The stock turned a corner in the summer, with Q2 comparable sales up 4.1% versus a ~1% forecast, and the company lifted its full-year sales and earnings outlook. New lines like AI-powered glasses and a dedicated gaming hub (Best Buy Gamers) were launched ahead of a holiday season featuring major titles such as Grand Theft Auto VI.
- Philip Morris International yields about 3.2% and increased its dividend by 8.8% to $1.60 per quarter, marking its 17th straight annual raise. This dividend growth comes as the company reported record quarterly revenue, gross profit, and operating income in October, with the smoke-free segment accounting for more than 40% of revenue and a 14% rise in operating income; however, the payout ratio sits around 90% of earnings.
- Kraft Heinz presents a high 6.5% yield but has not raised the dividend since 2019, with 2023–2026 results showing flat or shrinking cash flow. Q3 net sales fell 2% and adjusted operating income declined 15%, and a previously announced plan to split the company was paused, signaling weaker growth expectations behind the high yield.
- Universal Corp. yields about 8.4% after a 56-year dividend-growing run, yet its first fiscal quarter showed revenue down 12% and a net loss, reflecting an oversupply in tobacco and disappointing earnings. The dividend now costs more than a multiple of annual earnings, underscoring that the sustained payout cannot be relied on without stronger profits.
- Overall, the analysis cautions that high yields can be misleading if earnings growth and strategic execution do not support the payout, urging investors to distinguish between yield due to genuine growth versus yield traps driven by falling stock prices.
Summary
The piece weighs high-dividend yields as both a potential bonus and a risk, arguing that the sustainability of the payout hinges on earnings growth rather than yield alone. It highlights three consumer stocks as credible dividend-growth plays and two as yield traps, emphasizing whether management is growing earnings or merely maintaining payouts amid shrinking fundamentals. Among buys, PepsiCo, Best Buy, and Philip Morris International are cited for solid growth signals and long track records; Kraft Heinz and Universal Corp are warned as high yields masking deteriorating economics. The analysis suggests investors should look beyond the rate to earnings trajectory and strategic actions, with a forward view on sustaining or improving cash flow and payouts.
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