September is here, and with it marks the end of the first two-thirds of the investing year. If you're like many investors, you may want to ease into last part of the year by taking the pressure off your portfolio.
High-yield dividend stocks are an excellent way to collect passive income without having to worry about stock price movements. United Parcel Service(NYSE: UPS),Vitesse Energy (NYSE: VTS), and Stanley Black and Decker(NYSE: SWK) stand out as three excellent high-yield dividend stocks that are worth a look.
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UPS is putting up excellent results amid the industry slowdown
Daniel Foelber (UPS): After a rip-roaring period from 2020 to early 2022, the excitement for UPS stock has cooled off.
UPS benefited from a surge in residential deliveries during the pandemic and then was able to recover from a slowdown in business-to-business deliveries. It also enjoyed massive success by expanding its Digital Access Program (DAP) and tapping into the needs of small and medium-sized businesses, as well as the healthcare industry.
UPS stock now finds itself up just 8% over the last year and down more than 25% from its all-time high. A big reason for that is slowing growth.
UPS Revenue (TTM) data by YCharts
Trailing-12-month revenue, net income, and operating margins have all come down. Granted, these numbers on their own are still phenomenal. UPS sports incredibly impressive profitability and higher margins for a package delivery company, and it has far better metrics than FedEx in these categories. But the fact remains that the business is cooling off, and that has taken away some of the shine of UPS stock.
The package delivery business is cyclical. And UPS remains the clear industry leader. CEO Carol Tome remains one of my favorite CEOs out there. Strong leadership is a big driver of why UPS has a bright long-term future. Tome and her team are focused on what matters most, which is making the right strategic moves to outlast a sluggish period while also setting the stage for growth. A good example is the company's focus on growing DAP and healthcare revenue. DAP revenue came in at more than $1.4 billion in the first six months of 2023, and UPS thinks it can get to $3 billion for the full year. Meanwhile, healthcare revenue totaled $4.7 billion in the first six months of the year.
UPS's ability to tap into new markets while remaining strong in the ones it already serves is a testament to its top management and execution.
UPS stock has a dividend yield of 3.8%. Best of all, its price-to-earnings ratio is just 14.6, a significant discount to the market average.
All told, UPS is an inexpensive high-yield dividend stock that has what it takes to be a lifelong holding.
An unusual oil company paying a hefty dividend
Lee Samaha(Vitesse Energy): There's no such thing as a free lunch, and there's no such thing as a high-yield stock without risk attached. The reality is the market isn't stupid, and an 8.5% dividend-yielding stock isn't hidden from plain view. There's a reason Vitesse Energy carries such a high yield.
The reason is that the $2 dividend is probably not sustainable, because history suggests the price of oil is highly likely to be volatile. That said, there's also no reason Vitesse can't generate the earnings and cash flow to pay substantive dividends over the long term, even if it isn't at the current $2 level.
Vitesse is unusual because it's not an owner/operator of energy assets. Instead, it invests capital in small working interests in wells other energy companies operate. As such, the company's value lies in management's ongoing ability to identify and invest in productive wells. On top of that, there's upside potential from a rising price of oil.
To be clear, management does hedge its oil production and maintains the option to be flexible about how much of its production it's hedging. So in theory, at least, Vitesse could be agnostic to the price of oil.
However, in reality, hedging is fraught with uncertainty, and sharp movements in the underlying asset price are likely to catch out even the most conservative risk managers. Also note that entering 2023, Vitesse hedged only 31% of its expected oil production to 2024. As such, it makes sense to think of Vitesse as a stock that can deliver generous dividends, provided the price of oil stays relatively stable and/or moves upward over time.
Those assumptions might suit oil bulls or investors looking for a small investment in a high-yield stock with exposure to rising energy prices and those who trust its management team to carry on identifying productive assets. Just don't expect it to pay a $2 dividend forever.
Stanley Black & Decker belongs in a toolbox for investors attracted to solid dividend stocks
Scott Levine (Stanley Black & Decker): We don't have time machines to confirm whether companies will continue paying dividends for the foreseeable future, so until Doc Brown perfects his DeLorean, we'll have to look at a company's previous dividend payment history to assist us in speculating what it'll do in the coming years. In doing so, we find that Stanley Black & Decker, a Dividend King, has an impressive track record of rewarding shareholders: 53 years of consecutive dividend increases, to be precise. For investors looking to procure passive income for life, Stanley Black & Decker, along with its 3.5% forward yield, is a great candidate.
While the S&P 500 has risen more than 28% over the past three years, shares of Stanley Black & Decker have moved in the opposite direction, falling about 44%. Besieged by supply chain and inventory challenges, Stanley Black & Decker saw diluted earnings per share (EPS) fall from $10.16 in 2021 to $6.76 in 2022. Evidently, this precipitous drop on the bottom line was too much for some investors. The dour outlook for 2023, moreover, led others to abandon ship, with management forecasting negative diluted EPS of $1.65 to $0.85.
But shying away from Stanley Black & Decker because of its recent struggles is extremely shortsighted. A company that has continually increased its dividend for more than half of a century has proven resilience in its ability to navigate choppy waters. Currently, Stanley Black & Decker is implementing a cost-reduction initiative that management expects to result in $1 billion in savings by 2023. With shares trading at only 0.8 times sales, now seems like a great time to put this dividend darling to work.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx and Vitesse Energy. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
