Baby Boomer investors who aren’t happy with the falling rates on their savings and CDs may be enticed by the dividend stocks right about now. Specifically, the super-high-yield stocks look that much more competitive, even if their payout ratios are becoming pressured. After all, yields on dividend stocks could get a whole lot more competitive as rates take a tumble over the next year.
Undoubtedly, Baby Boomers, especially those who are in retirement, shouldn’t pursue any security based solely on yield. What you see isn’t always what you get, especially when it comes to the flashier (7-8% yielders) names that may not have the financial means to cover their payouts for all too long a duration, at least unless their fortunes turn. Just because a company can cover a dividend cash flow doesn’t mean it will be able to do so next year or the year after, especially if the firm behind the dividend is struggling with secular headwinds that may not dissipate quickly or at all.
Undoubtedly, it’s the safer choice for older investors to settle for dividend yields (think the 4% rule) and play things safe with the better-performing blue chips. That said, some high-yield stocks may also make sense to stash in the portfolio, especially if you’re not chasing the yield but the value.
In this piece, we’ll look at two stocks I view as historically undervalued with decent fundamentals that just so happen to have above-average yields. As always, Baby Boomers should put in their own homework before considering buying. Either way, the following seem worthy of adding to a watchlist.
Key Points About This Article
- Baby Boomers should strive to play it safe, but it’s also worthwhile to consider undervalued plays with above-average yields.
- Verizon and Pfizer are compelling, high-yield blue chips that have a lot going for them.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Verizon
Depending on who you ask, telecom firm Verizon (NYSE:VZ) is still a blue chip. Though, it’s no longer the same market darling it once was — far from it. The stock is doing its best to climb out of a historic rut. And though many safe investors may doubt the sustainability of the past-year rally (of nearly 20%), I’m in the camp that views Verizon as a worthy super-high yielder that’s starting to find its way again.
At 17.89 times trailing price-to-earnings (P/E) and 8.8 times forward P/E, VZ stock stands out as one of the cheaper names in this market worth picking up on strength. Just last week, the telecom reported some solid third-quarter earnings results.
Though revenue came in slightly shy of estimates, it’s clear that the numbers were good enough to keep investors from taking profits. Perhaps most encouragingly, the company added 239,000 new postpaid phone subscribers, smashing past the consensus calling for 221,000.
As the company pours money to beef up its network while consumers look to upgrade their old phones to an AI phone, perhaps Verizon stock has legs to climb even higher. Either way, there’s more for Baby Boomers to love than just the 6.51% yield.
Pfizer
Pfizer (NYSE:PFE) is another lagging blue chip with a high yield (5.82% at writing) that’s been hurting in recent years but has been showing signs of life of late. The company reported earnings on Tuesday, and the numbers were good. Though not good enough to fend off activist investors, I do view PFE as one of the super-high-yielders to keep watch of as new drugs come online with time.
Indeed, analysts may have underestimated the COVID portfolio, which helped Pfizer post a nice third-quarter beat. Of course, Pfizer needs to move past COVID if it’s to win back the love of investors. The oversized yield may not cut it, especially if the company can’t pull some hit products out of the pipeline in a timely manner.
Personally, I’m most encouraged by Pfizer’s take on the weight-loss drug market. Sure, it’s had its fair share of setbacks. However, the recent conference call shed some light on three candidates that could hold promise. Only time will tell if Pfizer has the oral weight-loss drug poised to dominate the scorching market. Either way, I don’t think its potential is yet baked into the stock. At 10.3 times forward P/E, PFE stands out as a value play first and a yield play second.
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