The S&P 500 index is hitting new all-time highs in 2024, and that has resulted in its dividend yield average falling to a miserly 1.2%. Income investors can do much better than that, with some particularly attractive options currently available among somewhat unloved stocks like Enbridge(NYSE: ENB), Toronto-Dominion Bank(NYSE: TD), and Hormel Foods(NYSE: HRL).
Here’s a quick primer on these three dividend stocks to explain why you might want to put $1,000 or more into this trio today.
Enbridge is one of the largest midstream companies in North America, with a network of energy infrastructure that helps to move oil and natural gas around the world. That’s the core of the business, representing around 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA). The company charges fees for the use of its assets, so this business is a highly reliable cash-flow generator. This strong base is part of the reason why Enbridge has been able to increase its dividend (paid in Canadian dollars), every year for 29 consecutive years.
The dividend yield is a lofty 6.4%, which is well above the energy sector average of roughly 3.4%. That’s partly because pipelines are slow-growth businesses. But there’s an oddity here because Enbridge gets around 22% of its EBITDA from natural gas utilities and 3% from clean energy. This is a purposeful move by management to shift with the world as it moves toward cleaner energy options.
It also puts Enbridge in a strange place for investors because it isn’t a pure play on anything it does. If you can handle owning a reliable high-yield dividend stock that’s going its own way (which happens to be the way the broader world is going), you might want to get to know Enbridge today.
The next stock up is Toronto-Dominion Bank, more commonly known as just TD Bank. It has a nearly 5.3% dividend yield versus the 2.5% for the average bank. Meanwhile, TD Bank has paid a dividend every year for over 100 years and managed to maintain its dividend through the Great Recession, a period that forced major U.S. banks to cut their dividends. It also happens to be a top-10 bank in North America and the No. 2 bank in Canada based on customer deposits.
So why is the yield more than double the industry average? TD Bank has just been fined roughly $3 billion by U.S. regulators for failing to stop its U.S. bank from being used to launder money. That’s bad. U.S. regulators have also put TD Bank under an asset cap, which will limit its ability to grow in the U.S. market. That’s worse.
However, TD Bank has the cash to pay the fine and the U.S. business is only a part of the overall bank. The next year or so will be a difficult one, financially speaking, for the U.S. business as it adjusts to the cap. But TD Bank is highly likely to survive this period and, in time, regain regulator and investor trust. If you can hold your nose while you hit the buy button, you’ll get paid very well to wait for what is a pretty low-risk turnaround to play out.
Consumer staples maker Hormel Foods is best known for owning SPAM, but its protein-focused branded food portfolio is large and spread throughout the grocery store. It also has a material business selling pre-cooked meat products to restaurants. It is also a highly elite Dividend King, with an annual dividend increase streak that’s up to 58 years. The dividend yield is currently 3.5%, which is near the highest level in the company’s history.
What’s going on? The food maker isn’t firing on all cylinders right now, as it faces rising costs (that it hasn’t been able to adequately offset with price increases), a slow pandemic recovery in China, avian flu, and the purchase of the Planters brand just as the nut segment of the snacking category started to slow down. These are all issues that are survivable; you don’t become a Dividend King without suffering through a few rough patches along the way.
Meanwhile, the average consumer staples stock has a dividend yield of just 2.5%. Given the long-term history here, dividend investors should probably give Hormel the benefit of the doubt as it works through a difficult period.
There are no guarantees on Wall Street, but Enbridge, TD Bank, and Hormel have all been highly reliable dividend stocks for decades. Sure, there are issues to consider with each one, but that’s exactly why their yields are so attractive. Even good companies have bad periods, which is exactly when contrarian investors usually jump aboard. If you have $1,000, $10,000, or $100,000 to invest right now, one or more of these high-yield dividend stocks could be a very smart buy for your portfolio today.
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Reuben Gregg Brewer has positions in Enbridge, Hormel Foods, and Toronto-Dominion Bank. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
