The first half of 2022 was undoubtedly one we would all like to put behind us. Stocks tumbled, and investors felt the pain. The ongoing war in Ukraine, supply chain issues, and a hawkish Fed were all impactful forces driving the poor share performances.
Nobody has a crystal ball that tells us where the market heads next, and investors must react – not predict.
During times of overall market weakness, it’s very beneficial for investors to have a stream of income that’ll help offset drawdowns. Investing for income is a popular strategy that many investors utilize.
Three stocks with high dividend yields paired with a strong Zacks Rank include Arbor Realty Trust
ABR
, Vale SA
VALE
, and Devon Energy
DVN
.
Let’s examine one a little closer to see why they would be solid bets for investors looking to add an income stream into their portfolios.
Arbor Realty Trust
Arbor Realty Trust
ABR
is a specialized real estate finance company investing in real estate-related bridge and mezzanine loans, preferred equity, mortgage-related securities, and other real estate-related assets.
ABR’s annual dividend yield sits pretty in the double-digits at 11.6%, with a payout ratio sitting at 75% of earnings. What sticks out to me is the company’s commitment to rewarding shareholders – the company has increased its dividend a jaw-dropping 16 times over the last five years and has a five-year annualized dividend growth rate in the double-digits of 15.5%. The yield is much higher than that of the S&P 500.
Image Source: Zacks Investment Research
ABR has enticing valuation levels, further displayed by its Style Score of B for Value. Its forward earnings multiple sits nicely at 7.3X, well below highs of 13.3X in 2019 and well below the five-year median of 10.3X. In addition, shares trade at a steep 57% discount relative to the S&P 500.
Image Source: Zacks Investment Research
ABR is a Zacks Rank #2 (Buy).
Devon Energy
Devon Energy Corporation
DVN
is an independent energy company primarily engaged in exploring, developing, and producing oil and natural gas. The company’s operations are mainly concentrated in the onshore areas of North America.
DVN thoroughly enjoys rewarding its shareholders; its dividend metrics are robust. The company’s dividend yield is 9.2%, with a payout ratio of 81% of earnings. What sticks out to me is its dividend growth – the company has increased its dividend a whopping ten times in the past five years, giving it a five-year annualized dividend growth rate of nearly 32%.
Image Source: Zacks Investment Research
Devon Energy sports a beautifully low 6.1X forward earnings multiple, nowhere near 2017 highs of 33.5X and well below 2021 highs of 33.5X. Additionally, the value reflects a resounding 64% discount relative to the S&P 500’s forward earnings multiple of 16.9X.
Devon Energy is a Zacks Rank #2 (Buy).
Vale SA
Vale SA
VALE
is a mining company that extracts iron, nickel, gold, copper, aluminum, potash, and other precious metals.
For those looking for an income stream, Vale’s got that covered with its annual dividend yielding 9.9%, with a payout ratio sitting at 29% of earnings. Additionally, the miner has increased its dividend six times over the last five years, providing an annualized five-year dividend growth rate of nearly 75%.
Image Source: Zacks Investment Research
The company sports enticing valuation metrics. Its 3.8X forward earnings multiple is well below 2018 highs of 12.3X and nowhere near its five-year median value of 3.8X. Additionally, shares trade at a steep 78% discount relative to the S&P 500.
Image Source: Zacks Investment Research
Vale is a Zacks Rank #1 (Strong Buy).
Bottom Line
Investing for an income stream is a popular way for investors to balance a portfolio. During times of overall market weakness, income-related stocks provide a reliable cash flow, undoubtedly easing drawdowns.
All three companies above have robust dividend metrics, solid valuation levels, and all carry a high Zacks Rank. These three stocks would be great places to start for investors with an appetite for income.
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