The US stock market is experiencing a growing market rotation as investors pull out of mega AI technology stocks and flock to smaller, lesser known small-cap companies with smaller market capitalizations. As market gains grow, dividend stocks are also attracting attention. Research by Kenneth French, Ross Family Distinguished Professor of Finance at Dartmouth University’s Tuck School of Business, showed that high-dividend stocks outperformed non-dividend-paying companies from 1928 to 2017 based on a hypothetical portfolio. The study also found that high-dividend yield stocks generally perform better over the long term than low-dividend stocks.
As individual investors turn to financial markets to generate dividend income, there is a growing demand for affordable yet reliable dividend stocks. Let’s take a look at some of the high-yielding stocks trading below $20 as of July 25.
AT&T (NYSE:T)
AT&T Inc (NYSE:T) is trading at just under $20 and has a dividend yield of 5.7%. The company had been increasing its dividends continuously for over 30 years until the growth streak ended in 2022 when it spun off WarnerMedia. AT&T reported better-than-expected postpaid subscriber growth in the second quarter. Cash flow from operations was $9.1 billion and capital expenditures were $4.4 billion. Total free cash flow was $4.6 billion, more than enough to cover the $2.1 billion dividend payment for the quarter. After the earnings release, BofA analyst David Burden reiterated his buy rating on the stock, saying T’s valuation is “compelling” given the company’s growing FCF, its “well-covered” dividend, and its ability to reduce its debt load.
Energy Transfer (NYSE:ET)
Energy Transfer LP Unit (NYSE:ET) is a high-yield stock priced under $20 with a dividend yield of over 7.8%. The stock has risen about 16% since the beginning of the year. Mizuho recently added the oil and gas pipeline company to its list of top energy companies with an outperform rating and a $20 price target. Mizuho analyst Gabriel Moline said in a note that the market had underestimated the company’s ability to benefit from data centers and AI.
BofA is also bullish on the stock, citing electrification and data centers. The company said in May that ET is one of the stocks that will benefit from expected electricity demand from data centers, AI and manufacturing.
Telus (NYSE:TU)
Canadian telecommunications company Telus Corporation (NYSE:TU) is one of the high-yield Canadian stocks (7% or more) trading under $20. In the first quarter, Telus’ total subscriber connections grew 7% year over year, and its adjusted EBITDA increased to $1.856 billion from $1.779 billion a year ago. Telus also has a strong track record of dividend growth. As of May, the company had increased its dividend 26 times in the past 14 years. The company expects FCF to be approximately $2.3 billion in 2024, driven by higher EBITDA and stable capital expenditures. This cash flow would represent a significant increase over reported 2023 FCF of $1.8 billion, also up 38% year over year.
KeyCorp (NYSE:KEY)
Ohio-based financial services company KeyCorp (NYSE:KEY) is not only a low-yield stock, it’s also a dividend growth stock. The stock has been consistently increasing its dividend for over a decade, and its dividend yield is over 5%. Earlier this month, the company released its second-quarter financial results. Earnings per share from continuing operations were $0.25, up from $0.20 last year and beating the consensus of $0.24. Net interest income for the quarter was $899 million, below the consensus estimate of $907.08 million.
Vodafone (NASDAQ:VOD)
British telecommunications giant Vodafone Group PLC (NASDAQ:VOD) has a dividend yield of over 15% and its shares were trading at less than $10 at the close on July 25. VOD is up about 4.7% since the beginning of the year. The company’s first-quarter results, released on July 25, showed that sales growth slowed due to regulatory changes in Germany that affected mass sales of televisions to residential areas. Nevertheless, the company reiterated its outlook for the full year. Vodafone’s reported revenue for the quarter increased 2.8% year over year to €9.04 billion, with service revenues up 3.2%.