Though the stock market is currently on a bull run with major indexes hovering near their record highs, its current levels overshadow severe near-term risks, including increasing COVID-19 cases due to the fast-spreading Delta variant, rising inflation, and forthcoming Fed Reserve policies, that might negatively affect investor sentiment in the coming weeks. These concerns have led analysts to anticipate a stock market correction soon, making the backdrop favorable for high-dividend yielding stocks.
Amid the continuing low-interest-rate environment and declining Treasury yields, we think it could be wise to bet on dividend stocks to ensure a steady stream of income and to hedge against short-term volatility.
Therefore, fundamentally sound and high-yield stocks British American Tobacco Plc (BTI), Telefonica SA (TEF), and Telefonica Brasil S.A. (VIV) could be solid bets now.
British American Tobacco Plc (BTI)
Headquartered in the United Kingdom, BTI sells tobacco and nicotine products worldwide. It offers a wide range of products, including vapor products, tobacco heating products, modern oral products, combustible products, and traditional oral products.
Last month, BTI’s Vuse became the first global carbon-neutral vape brand with a carbon-neutral summer voyage down the River Thames in London. The initiative demonstrated the company’s commitment to carbon neutrality and its various supporting initiatives.
BTI’s revenue came in at £12.18 billion ($16.75 billion) for the six months ended June 30, 2021. Its operating income amounted to £4.91 billion ($6.75 billion), while its EPS was £141.6 (194.83) over this period. In addition, the company reported £2.25 billion ($3.10 billion) in cash flow from operating activities.
The company's EPS is expected to grow 8.1% year-over-year to $4.76 next year. Analysts expect BTI's revenue to increase 3.9% year-over-year to $36.52 billion in its fiscal year 2022. BTI's stock has gained 9.2% in price over the past year and 6.2% over the past nine months.
BTI’s $2.9 annual dividend yields 7.8% at its current stock price. On January 26, the company approved a $0.75 quarterly dividend, payable on November 16. It has a 6.4% four-year average dividend.
BTI's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BTI has also been rated an A grade for Momentum, and a B for Stability and Sentiment. Within the A-rated Tobacco industry, it is ranked #3 of 11 stocks.
To see additional POWR Ratings for Growth, Value, and Quality for BTI, click here.
Telefonica SA (TEF)
Along with its subsidiaries, TEF provides telecommunications services in Europe and Latin America. The company's mobile and related services and products comprise mobile voice, value-added, mobile data, Internet, wholesale, corporate, roaming, fixed wireless, trunking, and paging services. TEF is headquartered in Madrid, Spain
Last month, TEF agreed to acquire Cancom UK&I for €398 million ($469.58 million) from Cancom Group. The move reflects TEF’s commitment to its organic and inorganic development strategy, allowing it to consolidate its position as the world's leading digital transformation company.
During the second quarter, ended June 30, 2021, TEF’s revenue came in at €9.96 billion ($11.76 billion). Its operating income increased 999% year-over-year to €11.35 billion ($13.39 billion). The company’s net income surged significantly to €7.74 billion ($9.14 billion), while its EPS amounted to €1.37 ($1.62) over this period.
Analysts expect TEF's EPS to increase 6% year-over-year to $0.33 in its fiscal year 2022. Also, the stock has surged 34.4% in price over the past year and 29% year-to-date.
TEF paid a $0.24 quarterly dividend on June 30. While the four-year average dividend yield for TEF is 7.4%, the current dividend translates to a 13.7% yield.
It is no surprise that TEF has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value, and a B for Growth and Stability. In the B-rated Telecom – Foreign industry, it is ranked #5 of 49 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the TEF ratings for Quality, Momentum, and Sentiment here.
Telefonica Brasil S.A. (VIV)
VIV in Sao Paulo, Brazil, provides mobile and landline telecommunications services to residential and business clients in Brazil. Its fixed-line services portfolio includes local and domestic long-distance, and international long-distance calls, while its mobile portfolio comprises voice and broadband internet access through 3G, 4G, and 4.5G, as well as mobile value-added services and wireless roaming services. In addition, the company offers telecommunications and IT assistance to a range of organizations, including retail, manufacturing, services, financial institutions, and government.
During the second quarter, ended June 30, 2021, VIV’s revenue increased 3.2% year-over-year to R$10.65 billion ($2.05 billion). The company’s operating earnings increased 16.7% from its year-ago value to R$4.79 billion ($921.02 billion). Its net income increased 20.9% year-over-year to R$1.35 billion ($258.67 million) over this period.
A $0.58 consensus EPS estimate for the current year represents a 7.4% increase year-over-year. The $8.69 billion consensus revenue estimate for the next year represents a 5.4% increase from the same period last year. The stock has gained 6.2% in price over the past six months and 4.8% over the past month.
VIV’s $0.31 annual dividend yields 3.71% at its current stock price. It has a 5.5% five-year average dividend yield.
VIV's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. VIV is also rated an A grade for Quality, and a B for Stability. Within the Telecom – Foreign industry, it is ranked #9 of 49 stocks.
Click here to see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for VIV.
BTI shares were trading at $37.65 per share on Tuesday morning, up $0.16 (+0.43%). Year-to-date, BTI has gained 4.32%, versus a 21.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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