As the stock market continues to slide into the final days of the third quarter, more and more of the growth stocks that fueled the market's outsized first-half rally are finding their way into correction territory - or even to new lows. And while the current market environment offers plenty of opportunities to buy the dip in various popular stocks, ongoing concerns about hawkish monetary policy and sticky inflation suggest that it's a great time to focus on high-quality, stable dividend stocks in particular.
Today, we'll spotlight three S&P 500 Index ($SPX) stocks that offer shareholders dividend yields north of 7% - but without any unpleasant “yield trap” pitfalls. Let's dive in and see why these reliable income picks are worth a second look right now.
AT&T: A High-Yield Play on 5G
AT&T (T) is the largest telecommunications company in the U.S., with over 180 million wireless subscribers and 15.5 million broadband customers. The telecom giant offers shareholders a dividend yield of 7.39%, which places AT&T among the highest-yielding S&P 500 stocks. It also has a stable cash flow and a low debt-to-equity ratio of 0.8.
AT&T’s stock price has been under pressure since the first half of 2023 - and in fact, the shares had one of their worst days ever back on April 20, when the telecom titan warned of weaker demand from both enterprise and individual consumers. That post-earnings bear gap preceded a steady decline to the stock's multi-year lows in mid-July - right around the time the broader market was hitting year-to-date highs.
Fast forward to the second-quarter earnings season, though, and - unlike most other tech stocks - the stage was set for beaten-down AT&T to surprise to the upside. AT&T reported 7.6% revenue growth to $44 billion, and EPS was up 5% to $0.89. Both figures surpassed consensus expectations, and they also beat on subscriber additions for both phones and broadband, while gaining 12 million subscribers for HBO Max.
What do the experts say? Analysts are mostly giving AT&T a thumbs up. The average price target is $20.38, suggesting a juicy 37% potential upside from current levels. Out of 18 analysts in the game, seven are shouting "strong buy," one is a "moderate buy," and 10 say "hold."
Now, the big question: Is AT&T your golden ticket to passive income? While lead cable cleanup costs may diminish the chances for steady dividend increases in the short term, there's also room for growth as the telecom simultaneously invests in 5G. Consider this one if you're into reliable investments with potential.
Ford: A Legacy Automaker with an Electric Future
Ford (F), the veteran auto giant with a rich history of innovation and global reach, sells about 5 million vehicles worldwide through dealers and distributors. The company offers shareholders a hefty 10.06% dividend yield.
On the charts, Ford stock is up 15% year-to-date - outperforming the broader S&P 500, which is now up just 10.6% since the start of 2023.
Ford reported net income of $1.92 billion in Q2, way above expectations. Revenue also climbed 38.1% to $44.95 billion, thanks to higher car prices and fewer discounts. However, Ford - which offers the F-150 Lightning, an electric version of their best-selling truck, and the Maverick, a hybrid pickup - also scaled back its electric vehicle (EV) production targets, which sent the stock reeling after earnings.
Since then, the automaker has also been hit by another fundamental concern - namely, a costly strike by the United Auto Workers (UAW) union, which is still ongoing. However, Ford so far seems to be faring the best among legacy automakers; as the strike expanded last week to include more General Motors (GM) and Stellantis (STLA) locations, UAW President Shawn Fain reportedly told union members, “We’ve made some real progress at Ford... they are serious about reaching a deal.”
Analysts called Ford a “hold” just one month ago, but the consensus is now a “moderate buy,” with an average price target of $15.31 - suggesting nearly 24% upside from current levels.
Positives for Ford right now include a tempting valuation, that high dividend yield, and a strong lineup of cars in the pipeline.
General Electric: An Old-School Conglomerate Slims Down to Its Core
General Electric (GE) is the Swiss Army knife of companies - although the legendary conglomerate has been deliberately slimming down in recent years, as evidenced by the recent spin-off of its healthcare unit, and with two more tax-free spinoffs set for 2024.
In its current form, GE has a market cap of $119.64 billion, and a jaw-dropping dividend yield of 17.34%.
This type of outsized dividend payout is often a “yield trap” - effectively, when a collapsing share price props up the stock's yield. That's certainly not the case with GE in 2023 - the stock has been on fire, up more than 69% since the start of the year. Over the last 52 weeks, GE has rallied 121.5%.
GE hit it out of the park in Q2 with net income of $35 million, or $0.68 per share, well above the expected $0.46 per share. Revenue surged 18% to $16.7 billion, thanks to strong performances in aerospace and renewable energy. Following the report, management hiked its guidance for full-year earnings and cash flow, as well.
What do the experts think? They're leaning bullish, though the average price target of $122.46 indicates a fairly modest premium of 10.3% to current levels. Out of 14 analysts, seven say "strong buy," two say "moderate buy," and five say "hold."
Conclusion
We've uncovered three intriguing S&P 500 stocks with dividend yields over 7%. From telecom to automobiles and aerospace, AT&T, Ford, and General Electric offer long-term operational expertise and relative stability. While each carries its own set of fundamental challenges, they also have the potential to deliver substantial returns over the long haul. So, for those seeking steady income stocks - with the potential for future growth, too - these three S&P names are worth considering.
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.
