Investors love dividend stocks, especially high-yield varieties, because they offer a significant income stream and have substantial total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. Let’s take a closer look at the concept of total return. Imagine you purchase a stock at $20 that offers a 3% dividend. If the stock price rises to $22 over the next year, your total return is 13%. This is calculated by adding the 10% increase in stock price to the 3% dividend.
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- So-called sin stocks often pay some of the highest dividends on Wall Street.
- With interest rates likely to rise from current levels next year, high-yield stocks are a solid investment now.
- Many income investors are more than happy to look past a company’s products to get reliable dividends.
- Are you ahead, or behind on retirement? SmartAsset’s free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don’t waste another minute; learn more here.(Sponsor)
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A long-overdue sell-off is likely to come next year. While it does not necessarily signal a market crash, it could signal a fast-and-furious 10%, 15%, or even 20% drop into bear-market territory, as we saw earlier this year. We have been looking for ideas that could withstand a swift sell-off, and the group commonly known as the “sin stocks” may be just the ticket for worried investors.
One category on Wall Street that some portfolio managers don’t want to discuss in their portfolios is the so-called sin stocks. These are companies that sell tobacco and alcohol products, run gambling casinos, sex-related industries, weapons manufacturers, and now even marijuana producers. While they don’t all seem sinful at the margin, some money management companies, like some investors, refuse to own them.
We screened our 24/7 Wall St. sin-stock research database. We identified five companies that pay dependable, high-yield dividends and appear to be great ideas for growth, even as income investors worry that we may be on the verge of a significant sell-off. All are rated Buy at top Wall Street firms.
Why do we cover “sin” dividend stocks?
Dividend stocks offer investors a reliable source of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Altria
Altria Group Inc. (NYSE: MO) is one of the world’s largest producers and marketers of cigarettes and other tobacco-related products. This stock offers value investors a compelling entry point and a generous 6.40% dividend yield. Altria manufactures and sells smokable and oral tobacco products in the United States.
The company’s dividend payout is based on free cash flow, ranging from about 64% to 80% per quarter. In recent quarters, free cash flow has exceeded dividend payments, providing a solid buffer. Altria generates strong cash flow from its core tobacco business, which provides a stable base, albeit with regulatory risk, and yields are among the highest in the S&P 500, at least for now.
The company primarily sells cigarettes under the Marlboro brand, as well as:
- Cigars and pipe tobacco, principally under the Black & Mild and Middleton brands
- Moist smokeless tobacco and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands
- on! Oral nicotine pouches
- e-vapor products under the NJOY ACE brand
It sells its tobacco products primarily to wholesalers, including distributors and large retail organizations, such as chain stores.
Altria used to own over 10% of Anheuser-Busch InBev S.A. (NYSE: BUD), the world’s largest brewer. Last year, the company sold 35 million of its 197 million shares through a global secondary offering. That represents 18% of its holdings but still leaves 8% of the outstanding shares in its back pocket. Altria also announced a $2.4 billion stock repurchase plan partially funded by the sale.
Goldman Sachs has a Buy rating with a $72 target price.
Lockheed Martin
This American aerospace and defense manufacturer has worldwide interests. It is one of the top aerospace and defense stocks to consider for investment. It is close to a big breakout and pays a dependable 2.71% dividend. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates, and sustains advanced technology systems, products, and services.
The company operates in five principal business segments:
- Aeronautics
- Missiles and Fire Control
- Mission Systems and Training
- Space Systems
- Information Systems and Global Solutions
It also provides a wide range of defense electronics products and IT services.
As the Pentagon’s prime contractor, Lockheed Martin plays a crucial role in national defense, offering a diverse portfolio of global aerospace, defense, security, and advanced technologies. Its leveraged presence in the Army, Air Force, Navy, and IT programs ensures a steady flow of follow-on orders from the U.S. government and many foreign allies.
Morgan Stanley has an Overweight rating with a $630 price target.
Diageo
This British multinational alcoholic beverage company is headquartered in London. Diageo PLC (NYSE: DEO) is one of the world’s largest producers of alcoholic beverages, and it pays a solid dividend of 4.40%. The company produces, markets, and sells alcoholic beverages worldwide, including:
- Scotch whiskey, gin, vodka, rum, beer, and spirits
- Irish cream liqueurs,
- Wine, Raki, tequila, Canadian, and American whiskey
- Cachaça, and brandy, as well as adult beverages and ready-to-drink products
The company’s premium brands comprise Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness. Its reserve brands include:
- Johnnie Walker Blue Label
- Johnnie Walker Green Label
- Johnnie Walker Gold Label 18-year-old
- Johnnie Walker Gold Label Reserve
- Johnnie Walker Platinum Label 18-year-old
- John Walker & Sons Collection
- Johnnie Walker The Gold Route
- Johnnie Walker The Royal Route
Johnnie Walker super premium brands include The Singleton, Cardhu, Talisker, Lagavulin, and other malt brands.
Bank of America has a Buy rating with a $109 target price.
Molson Coors Brewing
Molson Coors Brewing Co. (NYSE: TAP) was formed in 2005 through the merger of Molson of Canada and Coors of the United States. While the iconic American beer company merged with a Canadian beer giant, it remains based in Chicago, with its principal offices located in Golden, Colorado, and Montreal. It pays an excellent 4.02% dividend. Molson Coors manufactures, markets, and sells beer and other malt beverages under various brands in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
The company offers a range of flavored malt beverages, including hard seltzers, craft spirits, energy drinks, and ready-to-drink beverages. It provides its products under these brands:
- Aspall Cider
- Blue Moon
- Coors Original
- Five Trail
- Hop Valley brands
- Leinenkugel’s
- Madri
- Miller Genuine Draft
- Molson Ultra
- Sharp’s
- Staropramen
- Vizzy Hard Seltzer
Premium brands include Bergenbier, Borsodi, Carling, Coors Banquet, Coors Light, Jelen, Kamenitza, Miller Lite, Molson Canadian, Niksicko, and Ozujsko.
The company also markets economy brands, including Branik, Icehouse, Keystone, Miller High Life, Milwaukee’s Best, and Steel Reserve.
Its strategic response to Bud Light’s marketing missteps a few years ago, which led to a surge in new customers, is a testament to its agility. Furthermore, the company is exploring new opportunities, such as the potential to market a cannabis-infused product.
Goldman Sachs has a “Buy” rating with a $57 price target.
VICI Properties
This New York City-based real estate investment trust (REIT) specializes in casino and entertainment properties. This is one of the top picks on Wall Street in the net lease group and is ideal for more conservative investors seeking gaming exposure and a solid 5.59% dividend. VICI Properties Inc. (NYSE: VICI) is an S&P 500 experiential REIT with one of the largest portfolios of market-leading gaming, hospitality, and entertainment destinations, including three iconic entertainment facilities on the Las Vegas Strip:
- Caesars Palace Las Vegas
- MGM Grand
- The Venetian Resort Las Vegas
VICI Properties owns 93 experiential assets across a geographically diverse portfolio of 54 gaming properties and 39 other experiential properties across the United States and Canada. The portfolio comprises approximately 127 million square feet and features approximately 60,300 hotel rooms, as well as over 500 restaurants, bars, nightclubs, and sportsbooks.
Its properties are occupied by industry-leading gaming, leisure, and hospitality operators under long-term, triple-net lease agreements.
VICI Properties has a growing array of real estate and financing partnerships with leading operators in other experiential sectors, including:
- Bowlero
- Cabot
- Canyon Ranch
- Chelsea Piers
- Great Wolf Resorts
- Homefield
- Kalahari Resorts
VICI Properties also owns four championship golf courses and 33 acres of undeveloped and underdeveloped land adjacent to the Las Vegas Strip.
J.P. Morgan has an Overweight rating with a target price of $38.
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