Stocks may have started the month of June on a down note, but there's something to be said for a healthy market pullback. In particular, when stocks cool off from their highs, it's often a welcome opportunity for value-minded investors to pick up shares of quality, dividend-paying companies at discounted prices.
While the S&P 500 Index ($SPX) is only about 1% away from its recent highs, several cash-rich companies with sustainable dividends have pulled back even further from their 52-week highs lately, with investors still pricing in concerns over the “longer” part of “higher for longer” interest rates. This has made some of the top dividend payers in these industries look pretty attractive, pushing yields higher.
Three high-yield dividend stocks that have recently pulled back from their highs and offer compelling value propositions are Kenvue (KVUE), Enterprise Products Partners L.P. (EPD), and Verizon Communications Inc. (VZ). These stocks all yield over 4% and have consensus "buy" ratings from analysts, with significant upside to their mean price targets.
Dividend Stock #1: Kenvue Inc.
Kenvue Inc. (KVUE) is a relative new kid on the block, having spun off from Johnson & Johnson (JNJ) just last year. Kenvue operates as a consumer health company, with popular brands like Tylenol, Listerine, Band-Aid, and Neutrogena under its belt.
As a dividend nepo baby, Kenvue has quickly made a name for itself in the passive income world; the stock inherited J&J's Dividend King status when it spun off, and pays a quarterly dividend of $0.20 per share, which translates to an annual yield of around 4.2%. That's way higher than the S&P 500's average yield of 1.6%.
Kenvue's stock hasn't been performing too well lately, down around 10% year-to-date, compared to a gain of more than 10% for the S&P 500. KVUE is currently trading around 27% below its 52-week high from June 2023.
In Q1 of 2024, Kenvue reported revenue of $3.9 billion, up 1.1% year-over-year to top analysts' expectations. Net income was $296 million, down 10%, and adjusted EPS of $0.28 came in above consensus as well. Analysts expect Q2 2024 GAAP EPS of $0.30 and revenue of $4.05 billion, with full-year 2024 EPS projected at $1.18.
With a dividend payout ratio around 50%, Kenvue is also investing heavily in innovation and brand activation, with plans to invest an additional $300 million in its brands in 2024.
Analysts have a "Moderate Buy" consensus rating on Kenvue, with a mean price target of $22.75, suggesting about 18% upside from current prices. Out of 14 analysts, five recommend a “Strong Buy,” one a “Moderate buy, seven a “Hold,” and one a “Strong Sell.”
Dividend Stock #2: Enterprise Products Partners
Enterprise Products Partners L.P. (EPD) is a major player in the midstream energy space, offering services for natural gas (NGN24), natural gas liquids (NGLs), crude oil (CLN24), petrochemicals, and refined products.
As a Master Limited Partnership (MLP), EPD shares a lot of its cash flow with unitholders through dividends. EPD pays a quarterly dividend of $0.52 per unit, which adds up to a whopping 7.23% annual yield. That's well-supported by the company's strong cash flows, with a distribution coverage ratio of 1.7x. EPD has a solid track record of increasing its dividend for 24 consecutive years, with an average annual growth rate of 5.2% over the past decade.
EPD stock is up around 6.8% year-to-date, underperforming the S&P 500. The stock is down more than 6% from its 52-week highs in early April, tracking weakness in crude prices over this same time frame.
With a market cap of approximately $61.89 billion, EPD is still growing its reach by buying Texas assets with a hefty 620,000 bpd capacity from Western Midstream Partners (WES) for $400 million. They're also planning a new natural gas processing plant in the Permian Basin, which will handle over 300 million cubic feet of natural gas per day and extract more than 40,000 bpd of natural gas liquids. The plant is set to start operating in the second quarter of 2026. Another big project is the proposed Sea Port Oil Terminal (SPOT) offshore crude oil export facility, with a final investment decision expected by the end of 2024.
EPD reported Q1 2024 earnings on April 30, with EPS of $0.66 beating estimates of $0.64, and revenue of $14.76 billion also surpassing the consensus. Analysts expect full-year 2024 EPS growth of 7.1% to $2.71, with revenue expected to rise 12% to $55.8 billion.
Analysts are bullish on EPD, with a consensus "Strong Buy" rating. Out of 17 analysts, 13 recommend a “Strong Buy,” 2 say it's a “Moderate Buy,” and 2 suggest a “Hold.” The mean price target is $32.94, suggesting a 17% upside potential.
Dividend Stock #3: Verizon Communications
Verizon Communications Inc. (VZ) is one of the largest telecommunications companies in the U.S., offering wireless and wireline services to millions of customers. As a Dow Jones Industrial Average ($DOWI) component and a high-yield telecom stock, Verizon has long been a favorite among income-seeking investors. Verizon has an impressive track record of consistent dividend growth, having increased its payout for 20 consecutive years.
Currently, Verizon offers an attractive dividend yield of 6.46%, based on its annualized dividend of $2.66 per share. Verizon's payout ratio stands at a manageable 58%, indicating that the company's dividend is well-covered by its earnings.
VZ stock is up a respectable 9% or so in 2024, but the telecom stock is down more than 5% from its early April highs.
The recent decline can be attributed to mixed first-quarter 2024 results, along with concerns about the competitive landscape in the wireless industry.
In Q1 2024, Verizon reported a 0.2% increase in total revenue to $33 billion, which arrived slightly below analysts' expectations, and overshadowed a bottom-line beat. The company also lost 68,000 retail postpaid net subscribers, although this was better than anticipated.
On a positive note, Verizon's broadband segment performed well, adding 389,000 net subscribers, and its fixed wireless revenue grew by nearly 80%. For the full fiscal year 2024, analysts expect VZ to report EPS of $4.60 on revenue of $135 billion.
Analysts remain cautiously optimistic about Verizon's prospects, with an average "Moderate Buy" rating on the stock, and a mean price target of $44.50. That suggests about 8.2% upside from here. Out of 21 analysts, six recommend a “Strong Buy,” three say it's a “Moderate Buy,” and 12 are sticking with a “Hold.”
Wrapping It Up
In a market filled with uncertainty, high-yield dividend stocks like Kenvue, Enterprise Products Partners, and Verizon can offer a reliable passive income stream backed by steady earnings and cash flows. Each of these stocks provides attractive yields and strong dividend track records, making them solid picks for income-focused investors to buy on any weakness.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
