There are many reasons investors love dividends. For one, the companies that pay them are generally more stable because unhealthy companies aren’t in a position to return value to shareholders in the form of dividends.
Even during downturns or recessions, dividend stocks have historically shown growth, and long-term reinvestment of dividends is one of the best ways to generate wealth in a portfolio.
With questions about the U.S. economy mounting, here are three high-yield dividend stocks that investors can buy and hold forever: Ford Motor Company (NYSE: F), AT&T (NYSE: T), and Kraft Heinz (NASDAQ: KHC).
A thriving commercial business
Let’s first address the elephant in the room when it comes to Ford and the current economic uncertainty. The automaker’s balance sheet is in a great position to weather a potential downturn with nearly $27 billion in cash and about $45 billion in liquidity at the end of the second quarter.
Ford is also solving a major quality control problem after leading the U.S. automotive industry in recalls for three straight years, which drove warranty costs $800 million higher during the second quarter. J.D. Power recently reported that the company jumped 14 spots to No. 9 in its 2024 U.S. Initial Quality Study. It will take more than a year for its improvement to offset warranty costs, but things are moving in the right direction.
Right now, a hot topic for Ford investors is its Pro division, the commercial van and truck segment that has seen its business soar. During the first half of 2024, Ford Pro generated $5.57 billion in earnings before interest and taxes (EBIT) with EBIT margins nearly reaching 16%. Those results brightly outshone its Blue segment, with its traditional gasoline vehicles, which generated $2 billion in EBIT on margins at 4.3%.
In the near term, look for Ford to continue improving vehicle quality; expand its Pro business; and curb losses in its electric vehicle division, Model-e. As the company moves forward, long-term investors can reap the rewards of its dividend yield, which is nearing 6% territory.
No more cuts
Some investors currently might be hesitant to buy shares of AT&T for its dividend. That’s because in 2022, the company cut its quarterly dividend to pay down some of its debt.
Besides paying some of that debt, it also generated $8.5 billion in free cash flow during the first half of 2024 and easily had enough left to pay out $4.1 billion in dividends. The payout now looks safe from further cuts.
AT&T also delivered some strong signs of growth during the second quarter. The company added 419,000 postpaid phone net adds, well ahead of estimates calling for 285,000, and recorded 239,000 AT&T Fiber net adds, reaching 200,000-plus net adds for 18 consecutive quarters.
Mobility service revenue increased 3.4% compared to the prior year, while consumer broadband revenue rose 7%.
Potential catalysts could come from a phone upgrade cycle as new devices with artificial intelligence (AI) capabilities continue to come out, convincing consumers to replace their phones.
Ultimately, long-term investors can expect stable and consistent results, and with a dividend yield of 5.7%, AT&T continues to be very attractive for income seekers.
Time to accelerate
Kraft Heinz finds itself in an interesting turnaround position, while also offering income investors an interesting long-term opportunity. After years of cutting costs — a challenge in a competitive consumer goods industry that requires marketing and innovation to grow — the company is trying to refocus its strategy.
Kraft has now separated its brands into three categories: Accelerate, Protect, and Balance. Management says its Accelerate brands have the potential for higher growth and margins, and therefore deserve more marketing spending and innovation. The company plans to drive growth by pushing resources into these brands, and it’s possible stagnant brands in the Balance category could be sold off.
Top-line growth has been challenging, but Kraft grew its gross profit margin by 180 basis points during the second quarter. Through the first half of 2024, the company’s net cash provided by operating activities rose 8.1%, and its free cash flow increased 8.7% compared to the prior year.
While investors wait on the turnaround to gain more traction, and for its emerging markets to help drive revenue higher, the company dished $1.5 billion back to shareholders through dividends and share buybacks during the first half of 2024. Its yield sits at a robust 4.5%.
The bottom line
Various challenges have investors shying away from Ford, AT&T, and Kraft Heinz, but they all have historically strong brands and should continue to offer high-yielding dividends. The payouts aren’t likely to diminish anytime soon and should provide returns even during a potential downturn.
Should you invest $1,000 in Kraft Heinz right now?
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Daniel Miller has positions in Ford Motor Company. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
3 High-Yield Dividend Stocks to Buy and Hold Forever was originally published by The Motley Fool
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