Time to Pounce: 2 Ultra-High-Yield S&P 500 Dividend Stocks That Are Screaming Buys Right Now

More than a dozen S&P 500 components sport “ultra-high yields.” Two of these time-tested titans are begging to be bought by income seekers right now.

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This article was first published on The Motley Fool’s U.S. website.

Stocks have been a wealth-creating machine for investors over the long run. Though other asset classes have delivered a positive nominal return to patient investors, including gold, oil, and housing, none have come close to the annualized total return stocks have generated over the last century.

While innovation is a key growth driver on Wall Street, dividend investing has fueled this long-term outperformance.

Last year, investment advisory firm Hartford Funds released a report that examined the ins-and-outs of just how superior dividend stocks have been over long periods, when compared to publicly traded companies that don’t offer a payout. In a collaboration with Ned Davis Research, Hartford Funds’ report (“The Power of Dividends: Past, Present, and Future”) found that dividend-paying stocks had more than doubled up the annualized returns of non-payers — 9.17% vs. 4.27% — over the previous 50 years (1973-2023).

The great thing about dividend investing is that amazing deals can always be found. One of the best places to locate clear-as-day income bargains hiding in plain sight is within the benchmark S&P 500 (SNPINDEX: ^GSPC).

The S&P 500 is comprised of 500 of the largest, time-tested, multinational businesses traded on U.S. stock exchanges. Approximately 80% of these 500 businesses pays a regular dividend to their shareholders. Companies that pay a consistent dividend tend to be profitable on a recurring basis and can provide transparent long-term growth outlooks.

But no two dividend stocks are created equally. The S&P 500 is comprised of just over a dozen ultra-high-yield dividend stocks — i.e. companies with yields that are at least four times greater than the 1.335% yield of the S&P 500. Two of these ultra-high-yield S&P 500 dividend stocks are nothing short of screaming buys right now.

Related: Top S&P 500 ETFs in Canada

Time to pounce: Pfizer (5.87% yield)

The first high-octane S&P 500 dividend stock that’s begging to be bought by opportunistic income seekers is none other than pharmaceutical colossus Pfizer (NYSE:PFE).

In late April, Pfizer’s stock hit a decade-low of around $25 per share, which equated to a 59% decline from its all-time high that was achieved during the COVID-19 pandemic in December 2021. This precipitous decline came after a period of immense operating success for the company.

During the pandemic, Pfizer was one of a very small number of drug developers to have successfully engineered a COVID-19 vaccine (known as Comirnaty), as well as an oral therapy (known as Paxlovid) to lessen the severity of COVID-19 symptoms. Combined sales of Comirnaty and Paxlovid have declined from a peak of more than $56 billion in 2022 to an estimated $8 billion this year. Having to absorb a $48 billion retracement in COVID-19 sales hasn’t sat well with Wall Street or investors.

But if income seekers dig beneath the surface and look at the entirety of Pfizer’s novel drug portfolio and pipeline, they’re going to find a company that’s meaningfully strengthened itself since the decade began.

For example, Pfizer’s vast drug portfolio, excluding its duo of COVID-19 therapies, has continued to grow. After delivering 7% operating sales growth (ex. COVID therapies) in 2023, the company’s COVID-excluded therapies grew by 11% on a constant-currency basis during the March-ended quarter.

To add to the above, many of Pfizer’s most-important therapies are breaking through new ceilings. Sales of blockbuster blood-thinning drug Eliquis topped the $2 billion in the March quarter, while its Vyndaqel family of products enjoyed operational sales growth of 66% to $1.14 billion to begin the year.

Something else investors need to consider is that Pfizer completed a $43 billion acquisition of cancer-drug developer Seagen in December. Although this acquisition is expected to negatively impact earnings per share (EPS) in the current year, cost synergies, coupled with a vastly expanded oncology pipeline, should be meaningfully accretive to Pfizer’s EPS in the years to come. The shortsightedness of select investors is giving patient income seekers an incredible opportunity to snag shares of Pfizer on the cheap.

Speaking of “cheap,” shares of Pfizer are trading at roughly 10 times forward-year earnings. This represents a 19% discount to its average multiple to forward earnings over the trailing-five-year period.

The cherry on the sundae is that Pfizer confirmed its dividend, which is nearing a 6% yield, is perfectly safe. According to Chief Financial Officer David Denton, “Our No. 1 priority from a capital allocation perspective is both supporting and growing our dividend over time — and that is not at risk.”

Time to pounce: Walgreens Boots Alliance (5.5% yield)

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The second ultra-high-yield S&P 500 dividend stock that income seekers can confidently pounce on right now is beaten-down pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA).

Whereas Pfizer has been a victim of its own success, Walgreens’ stock is most definitely flailing because of its own failures. While not a comprehensive list, Walgreens has been contending with:

  • Growing online pharmacy competition from the likes of Amazon (NASDAQ:AMZN).
  • A challenging retail environment that’s not been helped by increased shrinkage (i.e., theft) at some of its stores.
  • The costly launch and expansion of its healthcare services operations, which resulted in a $5.8 billion write-down in the fiscal second quarter (ended Feb. 29, 2024).
  • Ongoing legal challenges that have included its role in the opioid crisis.
  • A near-halving of its dividend from $0.48/quarter to $0.25/quarter to begin the current calendar year.

In other words, there are tangible reasons why Walgreens Boots Alliance has declined by 81% since its stock hit an all-time closing high in 2015. The good news is that there appears to be light at the end of the tunnel for patient investors.

The biggest and most-needed change for Walgreens is that it brought in Tim Wentworth as its new CEO in October. Wentworth has decades of experience in the healthcare arena, having previously served as the CEO of Express Scripts, the largest pharmacy-benefit manager in the U.S. Prior CEO Rosalind Brewer didn’t have a healthcare background, which ultimately proved to be a detriment to the company. While Wentworth’s approach may cause some temporary growing pains, he understands how to right the ship for the long haul.

Another exciting change for Walgreens is its aforementioned shift to healthcare services. Though it’s a bit tardy building out its healthcare-service operations, its investment in and partnership with VillageMD should prove profitable in the years to come.

The differentiator here is that Walgreens is operating full-service health clinics. Whereas most pharmacy chains can do no more than administer a vaccine or treat a sniffle, VillageMD’s clinics that are co-located in Walgreens’ stores have physicians on-site. Building a base of loyal patients should steadily expand this new revenue stream for Walgreens.

Walgreens Boots Alliance also hasn’t been shy about spending on various digital growth initiatives. It’s leaned on digitization to improve the efficiency of its supply chain, as well as beef up its direct-to-consumer segment. While Walgreens will continue to generate the bulk of its revenue from its physical locations, bolstering its online sales and making things convenient for consumers is an easy way to lift its organic growth rate.

Cost-cutting is playing a role, too. After reaching a cumulative $2 billion in reduced annual operating expenses by the end of fiscal 2021, the company is now targeting $4.1 billion in aggregate annual cost reductions by the end of the current fiscal year. This should provide a boost to the company’s margins, as well as EPS.

The final piece of the puzzle is that Walgreens Boots Alliance is dirt cheap. Shares can be added by opportunistic investors for less than 6 times forward-year earnings. This is a 28% discount to its average forward-year multiple over the last five years, and one heck of a deal with a 5.5% dividend yield in tow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Sean Williams has positions in Amazon and Walgreens Boots Alliance. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool recommends Amazon and Pfizer. The Motley Fool has a disclosure policy.

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