Investing in a high-yielding dividend stock can come with significant risks. Oftentimes, a yield is high because it comes at a cost: uncertainty. Even though a dividend may look attractive, investors may not want to buy a stock if they are concerned about its ability to continue paying its dividend.
Two incredibly high-yielding stocks you can invest in today are Walgreens Boots Alliance (NASDAQ: WBA) and Altria Group (NYSE: MO). Neither of their payouts is particularly safe, but I'll break down which one may be the better option for dividend investors today.
Pharmacy retailer Walgreens Boots Alliance is undergoing a lot of changes right now. Under new CEO Tim Wentworth, who has been on the job roughly a year, it appears just about everything is on the table. Not only is the company contemplating selling assets and reducing the number of stores it operates, it's also considering dumping its investment in VillageMD, which would have been unfathomable even a year or two ago as it was seen as a pivotal part of its healthcare strategy.
Nowadays, however, Walgreens is struggling to grow, its bottom line isn't strong, and the company even slashed its dividend at the start of the year. Despite the cut, the stock's yield remains astonishingly high at 11.5%. But that isn't because the yield was even higher to begin with, it's because Walgreens' stock can't stop crashing. It's down 67% this year with its valuation going to levels it hasn't been at in decades.
But the good news is that Walgreens has levers it can pull on to simplify its operations. By reducing its store count, that can bring down its expenses and focus on just its most profitable locations. It has assets it can sell to free up cash flow as well. And with the new CEO not outright eliminating the dividend, that may be a sign he sees it as a key part of the company's future. And even if there's another a dividend cut, the yield may still remain fairly high and above the S&P 500 average (1.3%).
There's a lot to be worried about with Walgreens, but the business may not be doomed. Wentworth has been on the job for just a year and if he's able to turn things around, not only could the dividend be safe, but investors could also see a huge rally for this beaten-down stock. By no means is this a safe stock to own, but if you can handle the risk, the upside could be huge.
Altria faces a tough future of its own, but that's due to the industry it operates in. Smoking rates have been coming down for years and that's a trend that's not likely to change anytime soon as people become more concerned about their health. But despite this, there hasn't been a drastic decline in sales for Altria and in fact, things have been fairly stable over the past few years. Although revenue did fall last year, the top line isn't exactly nosediving.
The company is also generating enough in earnings to cover its dividend payments. For the second quarter of 2024, which ended on June 30, Altria's adjusted earnings per share totaled $1.31, which is higher than the $1.02 it pays in quarterly dividends. As long as it can maintain that level of profitability, the dividend should remain safe. In fact, the company even announced a 4.1% increase to its dividend in August, marking the 59th time in 55 years that it has raised its payout.
For years, Altria has made for a safe dividend stock to own and while its dividend yield of 8.1% may seem high, there aren't any red flags to suggest that a cut or suspension to the payout is coming anytime soon.
Picking between these two stocks isn't easy. From a strictly fundamental point of view, Altria may look to be the better dividend stock to own simply because in the near future, it may not have to cut or suspend its payout.
For the long term, however, I'd go with Walgreens for the simple reason that the business has more levers it can pull on to turn its business around. The healthcare industry is growing and by providing consumers convenient access to pharmaceuticals and other necessary day-to-day products, Walgreens plays an important role for communities across the country. While its strategy hasn't worked thus far, Walgreens may have more ways it can turn its business around than Altria might, which could continue to face declining sales for years to come.
Both stocks, however, are risky options and for many investors the best option will probably be to pick neither investment. There are many better dividend stocks to choose from than these two and while you may end up going with a lower-yielding stock, the result could make for a much less stressful investment to hold in your portfolio. Ultimately, it comes down to your level of risk tolerance.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.