One reason to invest in stocks is to generate a stable income that can help finance your life without having to work all the time. This includes investing in high-dividend stocks. The appeal of dividend stocks, including those that pay high dividends, is passive income.
A trait of low or high-dividend stocks is that they usually don’t fluctuate significantly in price, which means your investment is relatively stable. However, they do not typically experience substantial price increases like growth stocks.
It is important to note that companies in unstable financial positions may attempt to attract investors through high dividend payments. Additionally, dividends require companies to distribute cash from operations, which could limit resources for expansion or make them more vulnerable during downturns.
Since steady income is a primary motivation for investing in dividend stocks, it is wise to consider companies likely to sustain high dividend payments.
One method is reviewing companies designated as “Dividend Kings,” which have consistently increased dividends annually for over 50 years. However, many investors target these stocks, so finding good value may be challenging.
While 50 years demonstrates proven resilience through changing economic conditions, other companies maintaining attractive dividends after recent downturns also warrant consideration.
The following section examines three high-dividend stocks with consistent payouts currently trading at reasonable prices.
Hercules Capital (HTGC)
Hercules Capital (NYSE:HTGC) specializes in providing venture debt, secured loans, and growth capital to venture capital-backed companies at different stages of development. Its sector focuses on technology, energy and life sciences, primarily providing structured debt. Some well-known companies that Hercules Capital has supported include 23andMe (NASDAQ:ME), DocuSign (NASDAQ:DOCU) and Lyft (NASDAQ:LYFT).
Notably, the company has a forward dividend yield of 9.2%, sufficiently covered by cash generation. It maintains a dividend coverage ratio of 125%, generating 25% more cash than it pays out in dividends.
The business development company was founded in 2003, so it is not old enough to be considered a “Dividend King.” However, it pays a consistent dividend that has increased for 14 consecutive years, including through the pandemic. The company grew its dividend at an annual rate of 12.4% over the last three years.
HTGC stock has risen 25% so far this year. However, its price-earnings ratio (P/E) is still only 9.5x, well below the investment banking sector average of 21.6x.
Pfizer (PFE)
Pfizer (NYSE:PFE) is a prominent pharmaceutical company that developed the first mRNA vaccine for COVID-19. However, the company has faced difficulties in the last two years as vaccine sales declined more rapidly than expected following the pandemic. Due to lower vaccine sales, PFE stock fell 55% from its peak in 2022.
However, the company has progressed in developing new drugs, gaining approval for nine new medicines from the FDA last year. It currently has 113 projects in development, including 37 in Phase III trials.
Despite the post-pandemic sales setback, Pfizer has consistently increased its dividend for the last 14 years. It has also increased its dividend this year, giving an anticipated yield of 6.0%. Notably, Pfizer’s share price drop means it trades on a forward P/E ratio of 12.2x, significantly below the pharmaceutical sector average of 38.9x.
Some investors have been cautious due to a 33% decline in net income for the first quarter compared to the previous year. However, Pfizer expects business performance to stabilize and has raised full-year EPS guidance to $2.15 to $2.35.
Target (TGT)
As one of the “Dividend Kings,” Target (NYSE:TGT) has consistently paid and increased its dividend for over 50 years. Even during economic downturns, consumers still need grocery and clothing essentials. This provides stability in Target’s business model and the ability to reward shareholders. Beyond being a leading discount retailer in the United States, Target is also growing its online sales channel.
The company trades at a P/E ratio 16.8x, below the S&P 500 average of 29x. Target’s consistent dividend payments and growth come at the cost of a current forward dividend yield of 3.0%. However, investors can feel confident relying on Target’s dividend due to its competitive pricing, which attracts customers even during difficult markets. The company’s track record signals it will maintain and grow its dividend for the foreseeable future.
Target is not only one of the high-dividend stocks for long-term investors. Consensus average price targets reveal an upside potential of 18%. Growth estimates for the current quarter stand at 21.70% and for the next at 8.60%.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
