Dividend stocks generate a steady stream of income in the form of dividend payments. This may be especially appealing to investors seeking consistent cash flow, such as retirees or those looking for a source of passive income.
The best dividend-paying companies will typically have stable and predictable cash flows, which can be reassuring to investors, particularly during volatile market conditions. Dividend payments can help to cushion the impact of stock price fluctuations.
Plus, dividend stocks can also provide long-term capital appreciation opportunities. Here, we have two high-yielding dividend stocks: Rithm Capital Corp (RITM), which pays a dividend yield of 9.3%, and Altria Group (MO), which yields 9.4%.
While high yield is an appealing feature of a dividend stock, there are numerous other factors to consider before making an investment decision. For instance, a company with strong fundamentals has a better chance of maintaining dividend payments, even during challenging economic conditions. Let's find out if Rithm Capital and Altria are good dividend stocks to buy right now.
Altria: Dividend Yield of 9.46%
Altria Group (MO) is a consumer staples company that is well-known in the tobacco industry. Its global brands, including Marlboro, Copenhagen, and Skoal, have built a loyal customer base.
While the tobacco industry has historically been very profitable, the growing global wellness trend has presented some challenges. Altria decided to counteract these headwinds by investing in alternative products, such as wine, e-cigarettes, and cannabis. However, these strategies have not been very successful. In 2023, Altria's net revenue fell 0.9% to $20.5 billion, while adjusted earnings rose 2.3%.
Valued at $71.1 billion, Altria’s stock is up less than 2% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 7.9%.
Altria's 9.46% dividend yield is much higher than the consumer staples sector average of 1.89%. However, more so than yield, consistency in dividend payments is crucial when selecting a dividend stock, and Altria has demonstrated its value here.
Moreover, Altria is a member of the prestigious "Dividend Kings" group, which includes companies that have hiked their dividends for at least 50 years in a row — in Altria's case, 55 years. Plus, management has the goal of increasing its dividend annually by mid-single digits until 2028.
Altria's forward dividend payout ratio of 74.3% is relatively high. With earnings growth slowing, the company may struggle to maintain dividend payments. However, it aims to achieve earnings-compound annual growth rates in the mid-single digits by 2028.
In 2024, Altria expects earnings to increase by 1% to 4% over the previous year. By comparison, analysts predict Altria's earnings will rise by 2.3% in 2024 and 4.3% in 2025.
What Does Wall Street Say About Altria Stock?
Overall, Wall Street remains neutral and rates MO stock a “hold.” Out of the 11 analysts that cover the stock now, four rate it a “strong buy,” five recommend a "hold,” and two suggest it is a “strong sell.” The average target price of $45.95 implies an expected upside of 11.9% from current levels. The Street-high target of $50 suggests the stock could go up by 21.8% in the next 12 months.
No doubt, Altria’s yield is attractive, and its Dividend King status makes it a reliable dividend stock. However, the tobacco industry's consistent headwinds suggest its growth prospects are limited. Therefore, Wall Street's current neutral rating on Altria stock is justified.
Rithm Capital: Dividend Yield of 9.29%
Rithm Capital (RITM) is an asset manager that specializes in real estate and financial services. As a REIT, RITM is legally required to pay out 90% of its earnings in dividends, which appeals to income-oriented investors. The company's earnings for the year totaled $997.2 million, which the company planned to pay out as dividends. Furthermore, the company announced a stock repurchase program worth up to $200 million for 2024.
Valued at $5.2 billion, Rithm stock is almost unchanged on a YTD basis.
In 2023, the company acquired Sculptor, a real estate and credit markets-focused asset manager. This transaction, valued at $719.8 million, has made analysts optimistic about the stock.
Recently, UBS analyst Doug Harter noted, "We continue to see RITM shares as attractive given the combination of attractive current valuation (~10% discount to book value, 9.2% dividend yield) plus the potential for longer-term upside to ROE and valuation multiples as RITM is successful in transitioning more towards an asset management model.” The analyst raised the target price to $13 with a “buy” rating on the stock.
The company pays out a quarterly dividend of $0.25 per share. Its forward payout ratio of 54.8% appears to be sustainable only if the company manages to increase its earnings.
Analysts predict Rithm’s earnings could fall by 18.9% in 2024 to $1.67 per share. But earnings are estimated to rebound, increasing by 9.4% in 2025.
What Does Wall Street Say About RITM Stock?
Overall, Wall Street is bullish and rates RITM stock a “strong buy.” Out of the 10 analysts that cover the stock now, six rate it a “strong buy,” three recommend a "moderate buy,” and one suggests it is a “hold.” The average target price of $12.15 implies an upside of 14.6% from current levels. The Street-high target of $13 suggests the stock could go up by 22.6% in the next 12 months.
