With the Federal Reserve cutting away at rates and the broad markets soaring higher after a fairly decent earnings week, the hunt for yield may be getting a bit harder, at least for those who primarily invest in the big market indices, like the S&P 500.
And though chasing dividend yields can entail putting one at greater risk of a dividend cut as well as share price depreciation (or, at the very least, underperformance relative to the broad averages), I do think that those income investors who don’t mind a sub-par total return for a shot at more quarterly or monthly income may wish to pursue some of the fallen dividend deals that many investors seem to be passing up right about now as they grow more excited about the AI-driven tech plays, many of which pay no dividends or dividends with yields far below the 1% mark.
Though every little bit of dividend counts, especially in the grander scheme of things, I do think that nibbling on a few shares of the nearly 8-% yielders could make some sense if you want to boost the average yield of your portfolio by a few basis points.
Of course, overinvesting in such names without a careful evaluation of the risk/reward and the path forward could doom your portfolio to less-than-stellar gains relative to the likes of the S&P 500. In any case, I view the high-yielders as pretty opportunistic buys in small-to-moderate doses, especially for those who just need to have a yield at a certain level, whether that’s 3%, 5%, or a lot higher.
Personally, I’m a fan of the covered call or premium income ETFs, given the yield boost they provide and the lower magnitude of volatility they’ll introduce to a portfolio. However, this piece will look at individual names that have sustained payouts for the time being.
United Parcel Service
First up, we have shares of United Parcel Service (NYSE:UPS | UPS Price Prediction), which had a dividend yield closer to 8% when it was at its multi-year lows. More recently, the stock has been powering higher, gaining over 16% from its lows in October. As a result, the yield has fallen to 6.9%. However, it’s still a great dividend, and now that the company has a good result under its belt, I’m inclined to think that the risk/reward is better today than at the start of the month.
With a decent earnings report and a dividend that’s probably not going anywhere anytime soon, I’d be a buyer after the latest bounce. The company seems well-equipped to keep delivering (no pun intended) as it looks to rein in costs to better deal with a challenging tariff-filled climate.
Undoubtedly, there is upside as the firm makes big moves to revamp its strategy amid profound pressures. While industry pressures and the macro environment are primarily to blame, much of the pain in shares of United Parcel Service, I think, could have been avoided. Not all of the transport plays have imploded as viciously.
As the company rights its wrongs, I wouldn’t bet against a comeback, especially with newfound momentum behind the name as a still-depressed 14.9 times trailing price-to-earnings (P/E) multiple, which seems very reasonable for a transport firm that’s oversold and still down more than 55% from its 2021 highs. If you have confidence in management and its strategic plans, I think the shares are a buy for the dividend and potential to continue upside after one of the best months in a while.
ConAgra Brands
ConAgra Brands (NYSE:CAG) looks enticing, but risky after the yield surpassed the 8% mark this week. Undoubtedly, the consumer packaged goods firm has been under a never-ending barrage of industry pressures. And while there’s little reason to believe that a transformative reversal will suddenly happen going into its next quarter, I do think that the removal of some color additives could inspire health-conscious consumers to make a Healthy Choice once they return to the middle and frozen aisles at the grocer again.
Either way, analysts have had ample opportunity to downgrade, and while the crash in shares could certainly worsen, I’m inclined to tout ConAgra Brands as one of the best more-than-8%-yielders on the market right now. In a prior piece, I remarked on how the payout was starting to get stretched. When it comes to such yield heavyweights, that’s to be expected, though. I also briefly remarked on recent insider buying activity, which I viewed as a huge plus for prospective buyers of the distressed stock. The big question is when headwinds will pass as ConAgra Brands does its best to weather the storm.
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