The Federal Reserve may lower interest rates later this year. While the actual number of rate cuts is unknown, this regulatory action is expected to boost high-yield dividend companies because fund managers eagerly buy them in low-rate settings. These equities usually beat the major benchmark indices when interest rates fall.
Which high-yield dividend stocks can capitalise on this historical trend? AT&T (NYSE: T) and Pfizer (NYSE: PFE) appear undervalued. Each stock has a yield over 6%, which investment managers should watch as interest rates decline. Each stock's pros and cons are listed below.
AT&T: A stable 6.4% yield U.S. telecom giant AT&T is selling at a discount. AT&T's trailing price-to-earnings ratio is 8.84, compared to the telecom industry's 11.7. This low valuation and AT&T's 6.4% annualized dividend may appeal to value and income investors. After all, AT&T's dividend exceeds the 4% worldwide telecom industry average and the 1.47% S&P 500 stock yield.
Best of all, AT&T's aggressive cost-cutting plan appears to preserve its high yield. Starting in 2020, this strategy sought $6 billion in savings. The corporation is now aiming to cut costs by $2 billion or more by mid-2026 after meeting this target.
AT&T's top-tier dividend program and debt payments could benefit from this large expense reduction. Since AT&T's last debt-to-equity ratio was 135, its balance sheet was substantially debt-laden, this is crucial. Due to fierce competition, AT&T is unlikely to boost its top line this decade. Wall Street expects the company's revenue to climb 0.8% in 2025 and throughout the 2020s. AT&T stock is a top purchase due to its high dividend yield, attractive price, and strengthening fundamentals.
Pfizer: 6.2% yield at low valuation Pfizer, a worldwide pharmaceutical firm, has seen its share price drop significantly during the past two years. This drop is mostly attributable to a drop in COVID-19 sales and the expiration of several significant patents.
Despite these issues, Pfizer's stock may be a good buy for long-term investors. The company's shares trade at 12 times forecast earnings, well below the industry average of 17. At current levels, Pfizer has the highest yield among big pharma equities at 6.2%. This group's average yield is 3.6%, significantly less outstanding.
Why may Pfizer shares be discounted? After Pfizer's multibillion-dollar buyouts, the market remains dubious of its clinical pipeline. Pfizer's oncology program could generate three blockbuster treatments before the decade's end. If so, the drugmaker's shares should yield excellent returns for stockholders over the following 5–10 years.
Due to its ultra-high dividend, favorable valuation, and potentially undervalued pipeline, especially in oncology, this big pharma stock is a top purchase.
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