Dividends may be boring but are essential to building a well-balanced portfolio. After all, dividend payments have accounted for approximately 85% of the S&P 500's total returns since 1960, per a report by Hartford Funds.
Which dividend stocks are worth buying in the current market? Telecom giant AT&T(NYSE: T) and pharmaceutical titan Pfizer(NYSE: PFE) scan as incredible bargains for long-term, income-oriented investors. Read on to find out more about these two no-brainer dividend stocks.
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AT&T: A 6.5% yield with promising capital appreciation prospects
AT&T's journey can be likened to a phoenix rising from the ashes. Over the past decade, the telecom behemoth's stock price has seen a 36% decline. This is attributable to a series of missteps, including an overreach into the entertainment sector, a burdensome debt pile, the rise of budget-friendly rivals, and potential legal entanglements linked to its aging infrastructure.
Yet there's a renewed sense of optimism surrounding the company. Morningstar analyst Michael Hodel, for example, recently reaffirmed his $23 fair-value estimate for AT&T's stock, buoyed by the company's robust first-quarter results. This fair-value estimate suggests an upside potential of 33.9% from the stock's current price.
What are the drivers of this positive outlook? AT&T is showing signs of reaching an inflection point in its core operations, highlighted by a 9% reduction in customer disconnections in Q1 of 2024, compared to the previous year. Additionally, the company saw a 2.2% uptick in its customer base and a 0.9% increase in revenue per subscriber during the same period.
What's the main reason to consider buying shares? Beyond the attractive yield, AT&T stock is currently valued at just 9x trailing earnings, a stark contrast to the S&P 500's multiple of nearly 25x. AT&T thus appears to be an incredible bargain, particularly when considering its generous dividend yield.
As for risks, the U.S. telecom sector could be ripe for disruption by tech-savvy entities with deep pockets. Nevertheless, AT&T's substantial investments in 5G technology and fiber optics should provide a safeguard from unforeseen industry shake-ups.
All told, AT&T is exhibiting a healthy downward trend in customer churn, making strides in reducing debt, and investing in infrastructure that promises sustained growth over the long term. While the telecom industry isn't immune to disruption, AT&T's proactive measures have so far kept such threats at bay, positioning it as a potentially potent value and income play.
Pfizer: A 6% yield that's unlikely to persist much longer
Pfizer is charting a new course. After navigating through the turbulent waters of 2023 and the early months of 2024, the pharmaceutical behemoth is starting to emerge as a compelling value play.
The company's stock felt the pressure from a downturn in COVID-19 product sales last year, and the investment community expressed dissatisfaction with Pfizer's acquisition strategy, which didn't deliver the expected high-impact results. However, Pfizer's strategic pivot to focus on oncology as its primary growth driver is likely to be a wise long-term decision.
The rationale for this move is clear: An aging global population is expected to lead to an increase in cancer rates. Pfizer is preparing to meet this challenge by developing and launching several new anti-cancer agents over the coming years.
The oncology market is known for its strong pricing power, with cancer drugs typically carrying high price tags and significant margins. While Pfizer's recent acquisitions haven't produced a mega-blockbuster akin to Merck's Keytruda, its broad oncology pipeline is set to be a central pillar of growth.
For investors looking for deep value, Pfizer's stock, trading at just 12.7x forward earnings, represents a tremendous opportunity. And with the company's dividend yield near an all-time high, now may be an opportune time for bargain hunters to hit the buy button.
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George Budwell has positions in AT&T and Pfizer. The Motley Fool has positions in and recommends Merck and Pfizer. The Motley Fool has a disclosure policy.
