High-yield dividend stocks allow investors to generate steady cash flow while holding onto their shares. However, most of these same stocks tend to underperform the stock market. While a 5% yield may look good, it won’t be nearly as attractive if the stock drops by 50% in five years.
Many telecom companies offer high yields, but have struggled to keep up with the stock market. Verizon (NYSE:VZ) and AT&T (NYSE:T) are the two leaders in this category. Flat revenue and earnings growth doesn’t give them a good chance of outperforming the stock market in the long run.
However, investors can find respectable yields while keeping up with the stock market. Some dividend-paying stocks with high yields even outperform the stock market. While it’s difficult to find these types of stocks, it’s certainly possible for investors who have enough patience. These are some high-yield dividend stocks that can help you outperform the stock market.
Watsco (WSO)
Watsco (NYSE:WSO) is a leading distributor of air conditioning, health and refrigeration equipment. It’s not a big tech company, but long-term returns may have investors second-guessing that assertion. Watsco has delivered a 20% year-to-date return and has more than tripled over the past five years. The stock also has a 2.13% yield and an impressive growth rate. The company has an annualized 10.49% dividend growth rate over the past five years.
Investors will soon discover how well Watsco did in the second quarter. The company is due to report results at the end of July. However, first quarter results warrant confidence. Watsco reached a new record for Q1 sales and also had the highest cash flow in this quarter than any other. Watsco also improved its balance sheet so the company can make long-term investments. The company has more than $7 billion in annual sales and almost 700 locations, making it an ideal option in high-yield dividend stocks.
JPMorgan Chase (JPM)
JPMorgan Chase (NYSE:JPM) is one of the few big bank stocks that has kept up with the stock market. Shares are up by 21% year-to-date and have gained 80% over the past five years. The stock has a 2.2% yield and has ramped up its dividend growth rate after forgoing dividend hikes during the pandemic and in 2022. The bank hiked its quarterly dividend from $1.00 per share to $1.05 per share to start 2024. Then, the company immediately raised its quarterly dividend again from $1.05 to $1.15 per share.
Many customers turn to big banks when smaller banks struggle. JPMorgan is a major beneficiary of this trend, and it continued to delight investors. The financial institution reported a 23% return on equity in the second quarter of fiscal 2024. Revenue and net income both increased YOY, resulting in a 38.5% net profit margin.
Wall Street analysts believe that JPMorgan has more room to climb. The average price target implies a 5% upside from current levels. It’s currently rated as a “moderate buy.”
IBM (IBM)
Big Blue has been rebounding thanks to cloud computing and artificial intelligence. Although IBM (NYSE:IBM) endured a “Lost Decade,” the stock is finally gaining momentum. Shares are up by over 18% year-to-date and have rallied by 36% over the past year. IBM shares trade at a 21 P/E ratio and offer a 3.63% yield.
IBM’s first quarter financial results suggest that it can build on its momentum. Revenue increased by 1% YOY while net income surged by 73% YOY. Big Blue currently has a double-digit net profit margin. Software revenue was up by 5% YOY in the quarter.
Wall Street analysts have mixed opinions on IBM. It’s rated as a “moderate buy” with a projected 2% upside, but the highest price target of $215 per share implies a potential 16% gain. IBM isn’t going to outperform most big tech companies, and dividend growth has come to a crawl. However, income investors may want to take a closer look at this resurgent tech firm.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.