Experts Top +5% Dividend Value Stocks for 2024

It’s Friday. Time to give you a stock pick from our sister newsletter, The Spill, so you can think about it over the weekend and maybe make a move Monday morning. While The Juice helps you be better with money across the board, The Spill focuses on stocks financial pros are researching and judges how good of buys they are. If you’re already sold, you can sign up for The Spill – for free – here.
 

With interest rates higher than they’ve been in decades, cash matters more than ever.

Companies like Meta have begun to embrace dividends as a way to return cash to investors.

High-yield dividend stocks can offer investors an opportunity to dollar-cost average into a stock, or take home a source of income.

But be careful – sometimes high yields are high because they’re unsustainable.

Using our proprietary TrackStar data, we explored high-yield dividend stocks searched out by financial pros.

We then narrowed it down to those with exceptional value and growth potential in 2024.

Top of the list was Verizon Communications (VZ).

With a yield in excess of 5% and a stable customer base, we felt Verizon offered a good balance of value and growth potential.

Here’s why…

Verizon’s Business

Telecommunications companies spend billions of dollars every year to sustain and build out their networks.

Chances are, you’re within ½ a mile of a Verizon tower.

Unlike AT&T, it jumped on the 5G network.

That’s allowed Verizon to narrow its business to services (80% of revenues) and equipment (20% of revenues).

You can also divide Verizon’s business into consumer (76% of revenues) and business (24% of revenues).

Despite lower YoY revenues, driven by equipment, Verizon added a net 0.4% wireless subscribers in 2023, though it saw wireless retail postpaid phone subscribers drop by 0.2%.

Additionally, Fios video subscribers dropped by 8.8% while Fios internet increased by 3.5%, and wire broadband services increased 2.5%.

Source: Verizon Q4 Investor Presentation

Overall, it was a mixed bag for the company.

However, wireless retail postpaid phones, though negative for the year, has been trending upward with additions for the last three quarters. Continued, this would be a huge boon to Verizon’s forward revenues.

Financials

Source: Stock Analysis

Although revenues declined in 2023, gross margins improved, though partly from a change in product mix.

Operating and profit margins took a noticeable hit, while free cash flow margin improved by 3%.

In fact, management said they expect adjusted EBITDA to grow between 1%-3% in 2024, while Capex should decline about $1.5 billion.

That would put free cash flow at close to $20 billion in 2024, about $11 billion of which goes towards dividends while the rest often goes towards debt repayment, where total debt sits at $176.5 billion.

With interest expenses of $5.5 billion, the effective rate on the debt is 3.1%.

That might seem like a lot. But remember, the company owns $133 billion in equipment (depreciated).

Valuation

Source: Seeking Alpha

Value-wise, you can’t get much better than Verizon.

Xerox (XRX) certainly tries, with a price-to-operating cash flow of 3.4x compared to Verizon’s 4.5x. And it’s got a fairly comparable P/E ratio. Plus, it has a lower debt-to-equity ratio.

However, Xerox is a business in perpetual decline, whereas Verizon grows, albeit at a slower pace.

Other high dividend payers like Energy Transfer (ET) and Oneok (OKE) come from the energy sector, where the dividends fluctuate based on commodity volume.

Dow (DOW), the chemical company, is a bit more expensive, but still a decent value.

Growth

Source: Seeking Alpha

None of these high-dividend stocks saw revenues rise in 2023. Yet, Verizon and Oneok do expect slight growth in 2024.

Also noteworthy is that Verizon has seen its profitability decline in the last few years while the two energy names improved as commodity prices and volume increased. This happened as wireless competition increased and the company lost some patent protection.

Profitability

Source: Seeking Alpha

Still, Verizon has some of the best margins of the group, especially on free cash flow.

Given its commitment to dividend payouts, that’s important.

It may have some ups and downs. But it’s got the cash to pay investors.

Our Opinion 8/10

Verizon is definitely a stock to hold for long-term investors.

As interest rates fall, high-yield payers like Verizon will benefit as their debt gets cheaper and their relative value increases.

While the stock is up a decent amount this year, it’s one you can ease into over time with regular purchases.

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