Retail sales pleasantly surprised us all with a 1% monthly increase in July, helping markets shake off recession fears - and underscoring signs of confidence reflected in the University of Michigan's consumer sentiment index, which climbed to 67.8 in August from 66.4 in July.
With inflation easing and the economy showing resilience, even as the labor market cools, hopes are high that the Fed's first rate cut, expected next month, will keep the U.S. economy on a path toward a soft landing.
All these factors have contributed to the S&P 500 Index's ($SPX) impressive performance, with the index up 16.7% so far this year. And while a familiar lineup of mega-cap tech names have led the charge so far, the Fed's expected rate cuts could make high-yield dividend-paying stocks more attractive to investors.
Among the S&P 500 lineup, some of the highest-yielding picks worth considering are Devon Energy (DVN), Verizon Communications (VZ), and Pfizer Inc. (PFE). These companies operate in defensive and diverse sectors like telecommunications, healthcare, and energy, making them smart choices for those looking to balance risk and reward in their investment portfolios.
#1. Devon Energy
Devon Energy Corporation (DVN) is a major oil (CLV24) and natural gas (NGU24) player, focusing on sustainable and efficient growth across key U.S. areas like the Delaware, Williston, and Eagle Ford basins. With a market cap of around $27.7 billion, Devon is a heavyweight in the domestic energy sector.
Devon has a solid dividend history, too, backed by six consecutive years of growth. The energy company rewards shareholders with a solid 4.61% dividend yield, based on its annual dividend of $2.02 per share.
The energy stock has underperformed the broader S&P on a YTD basis, down 3.6%. Over the past 52 weeks, DVN has declined 12.2%.
During the second quarter, Devon's net earnings hit $844 million, up from $690 million last year, and earnings per share climbing to $1.34. On an adjusted basis, EPS of $1.41 surpassed expectations, while revenue increased 16% year over year to a stronger-than-forecast $3.92 billion. Their financial discipline is evident, with $1.5 billion in operating cash flow and $587 million in free cash flow for the second quarter.
One of their standout achievements was setting record oil production of 335,000 barrels daily, driven largely by the Delaware Basin, which accounts for 65% of their output. Overall, Devon's production averaged 707,000 barrels per day, marking a 7% increase from last year.
Devon is also making strategic moves, like acquiring Grayson Mill Energy's Williston Basin business for $5 billion, which should be immediately accretive to earnings and cash flow. Their share-repurchase plan expanded by 67% to $5 billion, reflecting their strong financial position.
Looking forward, Devon raised its 2024 production forecast to 677,000-688,000 barrels per day without increasing capital spending, thanks to efficiency gains. Analysts predict a slight decline in EPS for fiscal year 2024, followed by double-digit growth in 2025.
Devon has a consensus "Moderate Buy" rating from 25 analysts, with the target price of $56.67 suggesting a potential 29.7% upside from the current price. That average rating is based on 14 “Strong Buys,” two “Moderate Buys,” and nine “Holds,” showing a generally positive sentiment toward the stock.
#2. Verizon Communications
Verizon Communications Inc. (VZ) is a leader in telecommunications, offering services like wireless, wireline, broadband, and digital solutions. The telecom titan attracts income-focused investors with its generous dividend yield of 6.48%, which it has grown consistently for the last two decades.
VZ stock isn't generally known for its breakout price action, though the stock has delivered a respectable 8.4% return in 2024, and significant gains of 23.1% over the past year.
In its Q2 2024 earnings report, Verizon showed strong performance in its wireless service segment. The telecom reported $32.8 billion in operating revenue, a 0.6% increase from the previous year, though slightly short of Wall Street's forecast. Although net income decreased to $4.7 billion from $4.8 billion, earnings per share remained steady at $1.09, and adjusted EPS of $1.15 arrived in line with forecasts.
A key highlight was the 3.5% growth in wireless service revenue to $19.8 billion, driven by 148,000 new retail postpaid phone users and 340,000 retail postpaid net additions. Broadband growth was also notable, with 391,000 net additions, marking the eighth consecutive quarter with over 375,000 additions. The fixed wireless segment alone added 378,000 subscribers, a 69% increase from last year.
VZ has reduced unsecured debt by $3.1 billion since Q1 2024, bringing it down to $125.3 billion. Verizon anticipates wireless service revenue growth of 2.0% to 3.5% for the full year, with adjusted EBITDA growth of 1.0% to 3.0%.
Verizon's strategic focus on expanding its network and services is paying off. These initiatives include a partnership with the National Labor Relations Board to modernize network infrastructure and a collaboration with the Atlanta Hawks to enhance fan experiences. These moves are expanding Verizon's public sector footprint and boosting community engagement.
Analysts rate Verizon as a "Moderate Buy," on average, with the target price of $45.71 suggesting an 11.8% upside from the current price. With a price/earnings ratio of 8.99, Verizon looks like a reasonably valued stock to scoop up at current levels.
#3. Pfizer (PFE)
Pfizer Inc. (PFE) is one of the big players in the global biopharmaceutical industry, known for its wide range of healthcare products, including medicines, vaccines, and consumer items. They focus on key therapeutic areas like oncology, cardiology, immunology, and rare diseases.
With a dividend yield of 5.79% and 13 years of consecutive dividend growth, Pfizer is likely on the radar of many income-focused investors already.
In the second quarter of 2024, Pfizer faced challenges, but also achieved strategic wins. The company reported $13.3 billion in revenue, a 2% increase from the previous year, and adjusted earnings per share (EPS) of $0.60 exceeded expectations of $0.45. Despite a significant drop in COVID-related revenues, Pfizer managed a 14% growth in its non-COVID products, driven by strong sales from acquired drugs and key brands.
However, net income fell sharply by 98% to $41 million due to decreased COVID vaccine and treatment sales. Reflecting this, Pfizer stock has dropped more than 21% over the past 52 weeks - though, with the shares now up more than 14% from April's annual lows, PFE could be staging a turnaround.
To counter the decline in COVID-related revenues, Pfizer is focusing on its oncology portfolio, with significant contributions from newly acquired Seagen products. They’ve also launched a manufacturing optimization program aiming for $1.5 billion in cost savings by 2027, which should boost profitability and efficiency.
Additionally, Pfizer raised its 2024 revenue guidance to $59.5-$62.5 billion and adjusted EPS guidance to $2.45-$2.65, showing confidence in its non-COVID segments. Analysts are expecting EPS growth of 45% this fiscal year, with a return to more typical 6% growth in 2025.
Analysts rate Pfizer as a "Moderate Buy" overall, with the mean target price of $33.42 suggesting a 16.1% upside from the current price. Out of 21 analysts, 9 recommend a “Strong Buy,” while 12 suggest a “Hold,” reflecting general confidence in Pfizer's strategic initiatives and growth potential despite the recent stock volatility.
Conclusion
In conclusion, Devon Energy, Verizon Communications, and Pfizer all offer compelling opportunities for investors seeking high-yield S&P 500 stocks. Each company brings unique strengths: Devon's integrated energy exposure, Verizon's unparalleled network and partnerships, and Pfizer's bargain-priced pipeline of innovative pharmaceutical developments. With generous dividends and growth potential, these stocks provide a balanced mix of income and upside, making them worthy contenders for a long-term hold in any diversified portfolio.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
