Under an inflationary environment, the concept of high-yield dividend stocks to buy makes plenty of sense. With the benchmark interest rate at subterranean levels, investments that offer passive income will drive much attention. As well, the deterioration of the dollar’s purchasing power incentives companies that offer payouts.
However, what about deflationary circumstances where the benchmark interest rate rises? Under such scenarios, you might think the opposite would be true. High-yield dividend stocks to buy will fade as safer government-issued bonds provide more reliable returns. But that’s actually not what historical data suggests.
Indeed, a presentation listed on GlobalXETFs states that during periods of rising rates, high-yield dividend stocks to buy on average outperformed the benchmark equities index. Therefore, even with the Federal Reserve committed to raising rates, the below passive income providers should command significant relevance.
High-Yield Dividend Stocks to Buy: Suncor Energy (SU)
Based in Calgary, Alberta, Suncor Energy (NYSE:SU) represents one of Canada’s major hydrocarbon specialists. It focuses on the production of synthetic crude from oil sands. Based on geopolitical flashpoints, rising demand from normalization trends and escalating inflation, SU performed well in the market. So far, it gained 32% year-to-date.
As a relatively safe and all-around confidence-inspiring name among high-yield dividend stocks to buy, you won’t find too many companies better off than Suncor. For one thing, Suncor features a forward yield of 4.4%. In addition, its payout ratio is only 24.8%, meaning the yield should be sustainable based on current earnings trends.
On the fundamental side, Gurufocus labels SU stock as a “modestly undervalued” investment. Backed by a decently stable balance sheet, Suncor enjoys a three-year revenue growth rate of 5.3%. This ranks higher than almost 67% of the underlying industry. As well, the company features a net margin of 17.7%, higher than over 72% of its peers.
Over the past several publications, I’ve targeted Vale (NYSE:VALE) multiple times and for good reason. A Brazilian metals and mining firm, the company represents the world’s largest producer of iron ore and nickel. As you may know, nickel is a key ingredient of lithium-ion battery cells. Therefore, Vale undergirds the electric vehicle industry, offering long-term relevance.
However, Wall Street doesn’t share the enthusiasm over Vale’s forward implications. Since the beginning of this year, VALE slipped 2% below parity. What can I say? The bears refuse to look at the company’s broadly positive canvas. For instance, it features a forward yield of 4.4%, beating out the materials sector’s average yield of 2.8%. Also, the payout ratio sits at 23.3%, reflecting realistic sustainability.
On to the rest of the financials, Gurufocus rates VALE as “modestly undervalued.” Primarily, the underlying company enjoys excellent revenue-based metrics that exceed industry median levels. Additionally, Vale enjoys robust profitability metrics. Frankly, I don’t think you can go wrong with VALE as one of the high-yield dividend stocks to buy.
High-Yield Dividend Stocks to Buy: Intel (INTC)
From a distinctly undervalued idea to one that’s underappreciated, Intel (NASDAQ:INTC) can’t seem to catch a break. Before the coronavirus pandemic, it struggled against a mixture of outside competitive pressures and internal controversies. Currently, the headwinds against the broader technology space – such as global supply chain disruptions – hurt INTC. Shares slipped over 48% of equity value.
Still, for those who want to be a bit adventurous with their high-yield dividend stocks to buy, Intel might attract. For instance, the company offers a forward yield of 5.4%. That’s well above the tech sector’s average yield of 1.4%. Also, Intel has eight years of consecutive dividend increases. Its payout ratio stands at 59.3%, which is on the high side. However, it’s not glaringly problematic as the consecutive increases demonstrate.
Fundamentally, Gurufocus labels INTC “significantly undervalued.” Currently, its price-to-earnings (P/E) ratio is 5.9 times, below the industry median of 15.2 times. Also, Intel features a quality business, with a return on equity of 20.1%. That’s above nearly 73% of the competition.
Kinder Morgan (KMI)
One of North America’s largest energy infrastructure companies, Kinder Morgan (NYSE:KMI) owns and controls oil and gas pipelines and terminals. As a midstream specialist, Kinder connects upstream businesses (exploration and production) with downstream players (refining and marketing). Since the beginning of this year, KMI gained slightly over 8%.
Moving forward, Kinder Morgan should perform well based on the gradual normalization of society. Either way, midstream firms tend to be lower risk than other energy categories because of its ties to infrastructural needs such as storage and transportation. At the moment, KMI offers a forward yield of 6.5%.
To be sure, though, it does carry a lofty payout ratio of 94.3%. Ordinarily, this would stoke sustainability criticisms. However, with hydrocarbons becoming incredibly relevant because of geopolitical flashpoints, Kinder’s yield just might be workable.
On the financials, Gurufocus rates KMI as “modestly undervalued.” It features decent (though not great) growth trends. However, the highlight centers on profitability, with the company enjoying a net margin of 13.2%. That ranks better than 68% of the industry. Thus, Kinder brings much to the table as a candidate for high-yield dividend stocks to buy.
High-Yield Dividend Stocks to Buy: British American Tobacco (BTI)
Levered to a controversial industry, British American Tobacco (NYSE:BTI) may present a cynical “opportunity,” if you will. While debate rages on the topic, at least some evidence suggests the propensity to become a smoker increases during an economic downturn.
Currently, BTI gained about 4.5% since the January opener. Therefore, the thesis above may not be entirely speculative. Moreover, if you can get past the controversial element, British American provides a fantastic forward yield of 7.6%. That rates well above the consumer staples’ sector average of 1.9%. However, investors should note the payout ratio of 61.3%, which is on the higher side of the spectrum.
According to Gurufocus, investors may be paying a premium for BTI as it rates as “fairly valued.” However, the company features a forward P/E of 8.5 times, below the industry median of 10.3 times. Further, BTI commands strong profitability metrics for those focused on high-yield dividend stocks to buy.
Magellan Midstream Partners (MMP)
Another energy infrastructural play, Magellan Midstream Partners (NYSE:MMP) owns ammonia and petroleum pipelines in the Mid-Continent oil province. Per its corporate profile, Magellan Midstream owns 54 petroleum products terminals, 9,800 miles of refined products pipeline and 2,200 miles of crude oil pipeline.
So far, MMP trudges along nicely, gaining a bit under 10% since the beginning of this year. Of course, the star of the show is not necessarily its market performance but its forward yield of 8.3%. This ranks well above the energy sector’s average yield of 4.2%. Also, the company enjoys 19 years of consecutive dividend increases.
Now, two yellow flags come to mind. First, Magellan’s payout ratio stands at nearly 88%. However, given that the company has the 19-year streak going, the yield might be reliable. Second, Magellan features a business structure known as a master limited partnership, or MLP.
I encourage anyone interested in high-yield dividend stocks to investigate the full implications of MLPs. In short, significant tax requirements exist that may only suit certain types of individuals.
High-Yield Dividend Stocks to Buy: Rio Tinto (RIO)
Tied to the materials industry, Rio Tinto (NYSE:RIO) represents an Anglo-American multinational firm that ranks as the world’s second-largest metals and mining corporation. While it’s known for producing several industrial commodities, its specialty in copper may generate tremendous relevance. Like nickel, copper is an integral component of electric vehicle (EV) motors and batteries, among other systems and applications.
True to its nature as a metals and mining play, RIO rings a bit speculative. Since the start of the year, RIO dropped 14.4% of equity value. At the same time, current prospective investors may be eyeballing an opportunity. That’s because the company offers a forward yield of 9.7%, making it one of the most attractive high-yield dividend stocks to buy.
To be fair, the payout ratio of nearly 78% is high. It also doesn’t have consecutive years of dividend increases. Nevertheless, Rio Tinto enjoys a very solid balance sheet and excellent growth and profitability metrics. Notably, the company’s return on equity stands at 35.3%, ranked better than over 96% of the industry.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.