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The S&P 500 (SNPINDEX: ^GSPC) currently yields around 1.1%, but there are plenty of blue chip dividend stocks with far larger payouts. However, it's challenging to figure out which of these high-yield dividend stocks will likely sustain an above-average payout and which ones are at risk of becoming yield traps.
However, based on payout ratios and dividend-growth track records, these three stocks stand out: PepsiCo (NASDAQ: PEP), Pfizer (NYSE: PFE), and AT&T (NYSE: T).
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PepsiCo's 54-year track record of consecutive dividend growth makes it one of the Dividend Kings. The food and beverage giant may still be contending with weak domestic sales, while its payout ratio sits at the higher-risk range among consumer staples stocks, at 69%.
However, don't assume a dividend cut is just around the corner. Even as management has walked back guidance, the company still anticipates positive earnings growth of around 2.5% to 3.5% this year, driven by stronger international growth.
Dividend growth could remain relatively low for a while, but as management executes a turnaround focused mainly on cost reduction, PepsiCo could exit this slump sooner than expected. With the stock trading at a discounted 16 times forward earnings, this could spark a big recovery for shares, providing upside potential alongside the stock's 4.2% forward dividend yield.
Pfizer has raised its dividend for 16 consecutive years. At current prices, Pfizer yields 5.8%, a yield that may raise worries about potential cuts down the road, especially as the pharmaceutical company's revenue and earnings remain below COVID-era highs.
But while Pfizer's COVID products are on the decline, and the company faces the loss of patent exclusivity for blockbuster drugs like Eliquis and Ibrance, efforts like cost cutting and acquisition of new drug candidates suggest Pfizer can mitigate earnings declines in the near term, keeping the $1.72 per share in annual dividends well covered.
Forecasts call for earnings per share (EPS) of $3.04 and $2.94, respectively, during 2026 and 2027. This suggests a payout ratio of around 56.5% to 58.5%, still within an acceptable range for defensive names like pharmaceutical stocks.
AT&T's last dividend cut came on the heels of a one-time event, the spin-off of its WarnerMedia unit in 2022. Although "Ma Bell" hasn't raised its 27.75-cent-per-share quarterly dividend since halving it four years ago, shifting its focus toward debt reduction, I still wouldn't anticipate another cut around the corner.
For one, the telecommunications company's forward payout ratio is just under 47%, which is very sustainable for a defensive stock. Even as sales growth remains sluggish, with AT&T putting billions more to work to reduce debt and buy back shares, analysts anticipate EPS will rise 8.3% next year, from $2.40 to $2.60.
Telecom stocks have tumbled recently on fears of future competition from Space Exploration Technologies Corp's Starlink unit. However, if the outcome of this proves better than feared and AT&T successfully maintains slow-but-steady earnings growth, the dividend could be in for an increase. Trading for less than 9 times forward earnings, shares could benefit from multiple expansion as well.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Space Exploration Technologies. The Motley Fool has a disclosure policy.
3 Magnificent Dividend Stocks Yielding 4% or More to Buy in November was originally published by The Motley Fool
