World Stock Watch

High-Yield Dividend Stocks: Separating Opportunity from Risk

When it comes to investing, high-yield dividend stocks can be a tantalizing prospect. Established companies with larger-than-average dividend payments can provide both substantial current income and the potential for long-term appreciation. However, unusually high yields can also be a warning sign, indicating legitimate concerns about a company’s ability to maintain its dividend payments.

Two High-Profile Dividend Payers in the Spotlight

In today’s market, two high-profile dividend payers stand out: Pfizer (NYSE: PFE) and Altria Group (NYSE: MO). Both offer yields well above their respective industry averages, with each stock trading at notably low forward earnings multiples. But which stock offers the better opportunity for income-focused investors?

Pfizer: A Pharmaceutical Giant with a Generous Dividend

Pfizer, one of the world’s largest pharmaceutical companies, yields 6.53%, significantly higher than its large-cap pharmaceutical-peer average of 4.2%. Despite a payout ratio of 221%, the company has a long history of consistent dividend payments, with 345 consecutive quarterly payments. Upcoming pipeline developments in 2025, including data for its obesity drug candidate danuglipron, could prove critical to the drugmaker’s long-term financial performance and ability to sustain its dividend program.

Altria Group: A Tobacco Giant with Pricing Power

Altria, the largest U.S. tobacco company, yields an impressive 7.58%, exceeding its tobacco peer average of 6.7%. With a more manageable 67.3% payout ratio, the company’s Marlboro brand commands over 40% market share, providing crucial pricing power. Despite declining cigarette volumes, Altria has renewed its push into alternative products, including vaping and smokeless tobacco.

Which Stock Offers the Better Opportunity?

For income investors, Altria emerges as the better choice. While both companies have demonstrated commitments to their dividends, Altria’s fundamentals paint a more encouraging picture from a dividend-sustainability standpoint. Its lower payout ratio offers more cushion, and its pricing power has consistently offset volume declines. As a result, Altria scans as the better high-yield play in this head-to-head match-up.