The latest Consumer Price Index (CPI) reading shows inflation is still rising, up 8.6% in the past year. To offset the loss of purchasing power, earning a return on your investments is crucial. With the market down this year, you can buy the highest dividend yield stocks for a discount.
Although many analysts thought we would see some relief in the latest inflation reading, it shows little sign of letting up.
Investing in high dividend stocks is one of the best ways to build wealth in the long term. For one thing, if you reinvest the payouts, it can help compound returns over time.
But, be aware, some of the highest dividend yield stocks are not worth investing in. For example, the stock could be selling off for a good reason, driving the yield up.
On the other hand, some companies pay a higher yield to lure investors into “sin stocks.” Sin stocks are companies doing business that may be considered unethical, such as tobacco or gambling. To ensure you are getting the most of your returns, here are the highest dividend yield stocks worth investing in.
What Are the Highest Dividend Yield Stocks Right Now?
To find a company’s current dividend yield, you take its annual dividend per share and divide it by the share price. To illustrate, the formula is below…
Dividend yield = annual dividend per share/current share price
With this in mind, dividend yield gives you an idea of the return you get on your investment. For example, Apple (Nasdaq: AAPL) and Redwood Trust (NYSE: RWT) both pay an annual dividend of $0.92.
However, Apple stock has a dividend yield of 0.62%, while Redwood has a yield near 10%. Does this mean Redwood is the better investment? Not necessarily.
For one thing, Apple’s earnings are known to grow consistently. Investors recognize this and look at Apple stock as a growth opportunity.
In comparison, Redwood Trust is a Mortgage Reit. So, naturally, it pays a larger part of earnings to investors. With this in mind, Apple uses extra cash flow to reinvest back in the business and continue growing.
Lastly, Apple stock is up over 308% in the last five years, while RWT stock is down 30%, with dividends reinvested. So, you can see why it pays to invest in quality, not just the highest dividend-paying stocks. Below you will find the highest dividend yield stocks worth investing in for growth.
No. 4 Kraft Heinz (NYSE: KHC)
- Dividend Yield: 4.29%
- Payout Ratio: 57%
Your favorite ketchup and mustard company, Kraft Heinz, is looking to return to earnings growth. After ramping revenue in 2016 to $26.3B, the company has yet to reach that milestone.
But the company is planning to turn things around with strategic innovation. Instead of trying to revamp every product, Kraft is focusing on its highest potential opportunities. For example, condiments and sauces make the most sales, so this will be a category in focus.
At the same time, KHC owns brand names including Philadelphia (cream cheese), Lunchables, Kool-Aid, and Jell-O. With this in mind, strong brand positioning makes the turnaround possible.
Lastly, KHC plans to sell off its low-growth products to pay down debt. Then, Kraft will use the extra cash to expand into higher growth opportunities.
No. 3 Altria Group (NYSE: MO)
- Dividend Yield: 7.32%
- Payout Ratio: 76%
Altria is one of the “sin stocks” as the largest cigarette maker in the U.S. If you wish to stick to ethical stocks, skip to #2 on the highest dividend yield stocks list.
A report from the FTC last year found that cigarette sales increased during the pandemic for the first time in 20 years.
Despite this, the industry is in a secular decline. Yet Altria is cutting costs to get ahead of the curve and plan for the future.
Furthermore, the company is investing outside of tobacco to expand its market. For example, in 2019, Altria took a 45% stake in the cannabis company Cronos Group (Nasdaq: CRON). With this in mind, Altria’s dominant position in the tobacco industry and outside investments are why the company plans to continue growing.
No. 2 IBM (NYSE: IBM)
- Dividend Yield: 4.78%
- Payout Ratio: 68%
You won’t find too many tech stocks on the highest dividend yield stocks list. For one thing, tech companies often use extra cash flow to reinvest in the business, promoting future growth.
Given this, when the Federal Reserve raised interest rates, tech stocks were the first to fall. Yet IBM is outperforming the market this year as investors look for safety.
IBM is taking drastic steps to lead in the hybrid cloud and AI markets. So far, the company is off to a strong start with solid demand in both software and consulting. With this in mind, IBM is focusing on becoming more profitable with higher cash flow.
No. 1 Devon Energy (NYSE: DVN)
- Dividend Yield: 6.53%
- Payout Ratio: 54%
After leading the S&P 500 Index (SPX) in 2021, Devon Energy is off to another strong start in 2022. DVN stock is up 65% so far this year compared to the SPDR S&P 500 ETF (NYSE: SPY), down 17%.
A big reason why Devon Energy is outperforming is due to the near-record energy costs. With natural gas prices up 136% and oil prices over $120 a barrel, energy companies are earning record profits.
For Devon Energy, the company is also restructuring to focus on growth in the Delaware Basin. In fact, the company bought rival WPX Energy last year to expand its shale position. With this in mind, the Permian Basin (where Delaware Basin is) is one of the most profitable spots to drill.
With demand for oil and gas skyrocketing, experts don’t see prices coming down drastically anytime soon. It could take years for supply to fill the Russian energy gap. Given these reasons, Devon Energy is not only one of the highest dividend yield stocks but also a top asset to own in 2022.
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Is Now the Time to Buy the Highest Dividend Yield Stocks?
Investing in high dividend stocks can boost your returns over time. Moreover, with inflation hitting a new 40-year high, it’s time to earn some of it back.
The companies above are some of the highest dividend yield stocks in the market. But they are not just offering a high payout. These companies are growing earnings while sharing profits with investors.
When you can’t decide whether you are in a bull or bear market, dividend stocks offer a chance to earn a return regardless. According to a recent study, 84% of the total S&P 500 Index returns are thanks to reinvested dividends.
Lastly, dividend stocks may not be as fun to own as meme stocks, but they are proven in the long run. Start compounding your returns today with the highest dividend yield stocks worth investing in.
