Investment Thesis
Including high dividend yield companies in your investment portfolio brings you several benefits as an investor. This includes the generation of income, a reduction in portfolio volatility, and an elevated independence from stock market price fluctuations.
However, these benefits come with certain risks, primarily the potential for dividend reductions, which can negatively impact the Total Return of your investment portfolio.
For this reason, it is crucial to identify high dividend yield companies that offer investors sustainable dividends, which means they can increase their dividend payments over time.
Investing in companies that pay sustainable dividends ensures that you can invest with a reduced level of risk and an elevated chance of producing positive investment outcomes.
In this article, I will present you with two high dividend yield companies which I believe are presently attractive choices: Altria (NYSE:MO), a company from the Tobacco Industry which was founded in 1822, and VICI Properties (NYSE:VICI), a real estate investment trust founded in 1996.
I consider both companies to be appealing investment options due to their attractive Valuation (Altria exhibits a P/E [FWD] Ratio of 8.90 and VICI Properties showcases a P/AFFO [FWD] Ratio of 12.58), their financial health (A3 and Ba1 credit ratings from Moody’s), their significant competitive advantages, their ability to help you reduce portfolio volatility (24M Beta Factors of 0.47 and 0.83), and their capacity to provide investors with a mix of dividend income (Dividend Yields [FWD] of 8.62% and 5.87%) and dividend growth (their 5-Year Dividend Growth Rates [CAGR] stand at 4.59% and 7.76%).
Before diving deeper into these two companies, I would like to repeat the general benefits of including high dividend yield companies in your investment portfolio.
General Benefits of Investing in High Dividend Yield Companies
- The Generation of Income: Dividend paying companies bring you the enormous benefit of helping you to produce income. This provides you with much higher financial flexibility and offers the enormous benefit of not having to sell some of your stocks when you might need some extra money at a time when the market is not in your favor.
- Significant Reduction of the Volatility and Risk Level of Your Overall investment Portfolio: Companies that pay a relatively high and particularly sustainable dividend, tend to come attached to a lower risk level, particularly when compared to growth companies, thus contributing to reducing the volatility and overall risk level of your investment portfolio (their lower risk level can be reflected in their lower Beta Factor).
- Psychological Investor Benefits in Times of a Stock Market Decline: In times of high volatility and declining stock markets, receiving dividend payments can bring you a psychological effect that can lead you to keep the positions in your portfolio to continue benefiting from dividend payments, acting like a business owner, instead of a stock market trader. This behavior can help you to significantly increase your wealth over the long term.
VICI Properties
VICI Properties is a real estate investment trust with a portfolio of market-leading gaming, hospitality and entertainment destinations, including the following:
- Caesars Palace Las Vegas
- MGM Grand
- The Venetian Resort Las Vegas
VICI Properties boasts an investment grade balance sheet, a strong track record of dividend growth, stable cash flows, and a portfolio of 93 properties across the United States and Canada.
VICI Properties’ Current Valuation
Several metrics underline my thesis that VICI Properties is presently undervalued.
At VICI Properties’ current price level of $28.30, the company exhibits a P/AFFO [FWD] Ratio of 12.58, which is 11.74% below the Sector Median. Moreover, its P/FFO [FWD] Ratio of 11.08 lies 11.95% below the Sector Median.
In addition, it can be highlighted that VICI Properties’ Dividend Yield [TTM] of 5.78% stands significantly above the Sector Median of 4.66%, further strengthening my belief that the company is presently undervalued.
VICI Properties’ Combination of Dividend Income and Dividend Growth
At VICI Properties’ current price level, the company offers shareholders a Dividend Yield [FWD] of 5.87%. The company’s 3-Year Dividend Growth Rate [CAGR] stands at 8.29%, which demonstrates its potential for dividend growth. This potential is further underlined by its relatively low Payout Ratio of 66.15%, indicating scope for future dividend enhancements.
Below you can find Consensus Dividend Estimates for VICI Properties. It can be highlighted that the Consensus Yield for 2024 stands at 5.97%, for 2025 at 6.19%, and for 2026 at 6.36%. All these metrics underline my theory that VICI Properties is an excellent choice to blend dividend income with dividend growth potential.
The Projection of VICI Properties’ Dividend and Yield on Cost
The graphic below illustrates a projection of VICI Properties Dividend and Yield on Cost when assuming an Average Dividend Growth Rate of 5% for the following 30 years. This is a conservative assumption when considering the company’s 5-Year Dividend Growth Rate [CAGR] of 7.76%.
It can be highlighted that you could potentially reach a Yield on Cost of 9.55% in 2034, 15.56% in 2044, and 25.35% in 2054. The chart underscores the benefits for investors when investing in VICI Properties over the long term.
VICI Properties according to the Seeking Alpha Quant Rating
According to the Seeking Alpha Quant Rating, VICI Properties is presently a strong buy. This underlines my own buy rating for the company while bolstering my decision to select it as one of my top two high dividend yield companies to consider investing in this June.
Altria
Altria, a company from the Tobacco Industry with a current Market Capitalization of $78.13B, primarily markets its products under the Marlboro brand.
With a proportion of 3.52%, Altria is one of the largest positions of The Dividend Income Accelerator Portfolio (when distributing Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and iShares Core High Dividend ETF (NYSEARCA:HDV) across the companies they are invested in), and it is worth mentioning that the company is also part of my personal investment portfolio.
Altria’s Current Valuation
In terms of Valuation, I believe that Altria is presently undervalued. Proof of this is the company’s P/E [FWD] Ratio of 8.90, which stands 53.51% below the Sector Median and 25.03% below its average of the past 5 years.
Altria’s undervaluation is further evidenced by a Dividend Yield [TTM] of 8.53%, which stands above its average from the past 5 years (7.88%).
Below you can find the Seeking Alpha Valuation Grades, which further confirm my theory that Altria is presently undervalued.
Altria’s Combination of Dividend Income and Dividend Growth
Altria provides investors with an attractive mix of dividend income and dividend growth, which indicates that the company is especially attractive for long-term investors aiming to benefit from steadily increasing dividend payments.
At Altria’s current price level of $45.49, the company offers shareholders a Dividend Yield [FWD] of 8.62. Altria’s 10-Year Dividend Growth Rate [CAGR] presently stands at 7.51%, underscoring my theory that the company effectively blends dividend income with potential for dividend growth.
Altria According to The Seeking Alpha Dividend Grades
According to the Seeking Alpha Dividend Grades, Altria receives an A+ for Dividend Growth, Dividend Yield and Dividend Consistency. For Dividend Safety, the company receives a B-. It is further worth highlighting that this Valuation has not changed within the past 3-month period, a fact that further underscores Altria’s rock-solid dividend.
Risk Analysis
A risk analysis of a stock is crucial for investors, since a company with a low risk level offers an enhanced probability of delivering successful investment outcomes. On the other hand, companies with a high-risk level often tend to present a reduced chance of favorable investment returns. This is mainly because they are subject to more uncontrollable factors, thus reducing the prospects for attractive investment results.
Risk Analysis – VICI Properties
One of the main risk factors I see for investors considering an investment in VICI Properties is the company’s dependence on the gaming industry. Increasing competition, changes in consumer behavior or regulatory modifications within the gaming industry could negatively affect VICI Properties’ financial results.
Another risk factor I see is the fact that a larger proportion of the company’s revenue is generated from the Las Vegas Strip, which implies a larger concentration risk when compared to companies with a broader geographical diversification.
In addition to that, it is worth highlighting that a dividend reduction could have a negative impact on the company’s stock price, representing an additional risk-factor for investors considering an investment in VICI Properties.
However, I believe that the probability of a dividend reduction is presently relatively low. This is evidenced by the company’s relatively low Dividend Payout Ratio [TTM] [Non GAAP] of 62.40%. The Seeking Alpha Dividend Safety Grade for VICI Properties, which you can find below, further confirms my thesis that the company’s dividend is relatively safe: it receives a B for Dividend Safety.
Reducing Portfolio Risk When Investing in VICI Properties for Improved Investment Outcomes: The Case for a 4% Allocation Limit and for a Long-Term Investment Approach
When investing in VICI Properties, I suggest a long-term investment approach to maximize the benefits of steadily increasing dividend payments. Furthermore, I suggest a 4% allocation limit to reduce company-specific allocation risks.
This approach allows you to decrease the overall risk level of your dividend portfolio, prioritizing not only the generation of income via dividend payments, but also striving for an attractive Total Return with an elevated probability.
Risk Analysis – Altria
I believe that one of the main risk factors for Altria investors is a reduction of its dividend, which could have a strong negative impact on the company’s stock price.
Altria currently showcases a Dividend Payout Ratio [TTM] (Non GAAP] of 79.26%, as demonstrated by the Seeking Alpha Dividend Safety Grade below. At this moment in time, the company receives a B- for Dividend Safety.
In the long-term, I don’t consider Altria’s dividend to be entirely safe. This is due to the company’s limited growth perspective, which is a result of a declining number of smokers.
The declining number of smokers represents one of the main risk-factors for Altria investors, in addition to changing regulations within the Tobacco Industry, which could have further adverse effects on the company’s financial results.
Nevertheless, thanks to its loyal customer base, I believe Altria will be able to offset the declining number of smokers by increasing product prices. This implies that in the short term, I believe the likelihood of a dividend reduction is relatively low.
Reducing Portfolio Risk When Investing in Altria for Improved Investment Outcomes: The Case for a 4% Allocation Limit and for a Long-Term Investment Approach
Given Altria’s limited growth prospects, I suggest a 4% allocation limit while maintaining a long-term investment approach. This will allow you to benefit from its steadily increasing dividend enhancements while reducing company-specific allocation risks, and decreasing the overall risk level of your portfolio.
Maximizing Investor Benefits when Investing in Altria and VICI Properties
I am convinced that including Altria and VICI Properties in a broadly diversified dividend portfolio with a reduced risk level will increase your chances of successful investment outcomes.
The Dividend Income Accelerator Portfolio is a portfolio with such characteristics. It combines dividend income with dividend growth, offers investors a reduced risk level due to its extensive diversification across sectors and industries, as well as geographical diversification and its diversification across equity styles. Moreover, the portfolio has a focus on large-cap companies with value-focus, while providing investors with a reduced volatility thanks to incorporating companies with low Beta Factors.
The Reasons for Adding VICI Properties To The Dividend Income Accelerator Portfolio
VICI Properties presently accounts for 2.20% of The Dividend Income Accelerator Portfolio, when allocating the Cohen & Steers Quality Income Realty Fund (NYSE:RQI) (which is also invested in VICI Properties) across the companies it is invested in.
VICI Properties’ combination of dividend income and dividend growth, its financial health (Ba1 credit rating from Moody’s), and ability to reduce portfolio volatility (24M Beta Factor of 0.83) have been among the main reasons for including the company.
The Reasons for Adding Altria To The Dividend Income Accelerator Portfolio
As mentioned before, Altria is already part of The Dividend Income Accelerator Portfolio, currently representing 3.52% of the overall portfolio.
The reasons for having incorporated Altria into the portfolio are diverse: Altria combines dividend income with dividend growth, contributes to reducing portfolio volatility (through its 24M Beta Factor of 0.47), and showcases a strong financial health (EBIT Margin [TTM] of 58.77%). Moreover, the company boasts significant competitive advantages, to which I count its loyal customer base, pricing power, extensive distribution network, and economies of scale. In my opinion, these competitive advantages ensure that the company will stand out against competitors over the long term.
Conclusion
I believe that both Altria and VICI Properties are presently attractive choices to be added to an investment portfolio that focuses on dividend income: both companies have significant competitive advantages, are financially healthy (A3 and Ba1 credit rating from Moody’s), combine dividend income (Altria’s Dividend Yield [FWD] stands at 8.62% and VICI Properties is at 5.87%) and dividend growth (their 5-Year Dividend Growth Rates [CAGR] stand at 4.59% and 7.76% respectively), and both can contribute to reducing the volatility of your investment portfolio (24M Beta Factors of 0.47 and 0.83 respectively).
In addition to that, it can be highlighted that their Payout Ratios of 78.86% (Altria) and 66.15% (VICI Properties) further indicate room for dividend enhancements. It is also worth noting that both are presently undervalued, as I have shown within this analysis. Their undervaluation allows you to invest with a margin of safety.
Including both in a diversified dividend portfolio that blends dividend income and dividend growth, such as The Dividend Income Accelerator Portfolio, maximizes your benefits as an investor. This approach allows you to generate a significant amount of extra income through dividend payments while providing you with increased likelihood of reaching an attractive Total Return when investing over the long-term.
Author’s Note: Thank you for reading! I would appreciate hearing your thoughts on this article on Altria and VICI Properties. Which high dividend yield companies are you considering investing in during this month of June?
Frederik Mueller
I specialize in constructing investment portfolios aimed at generating additional income through dividends. My focus lies on identifying companies with significant competitive advantages and strong financials that can provide you with an attractive Dividend Yield and Dividend Growth, thus enabling you to augment your dividend income annually. By combining high Dividend Yield and Dividend Growth companies, you can gradually reduce your dependence on the broader stock market fluctuations.I also assist you in achieving a well-diversified portfolio across various sectors and industries. This diversification strategy aims to minimize portfolio volatility and mitigate risk. I also suggest incorporating companies with a low Beta Factor, which further contributes to reducing the overall risk level of your investment portfolio. My suggested investment portfolios commonly consist of a blend of ETFs and individual companies, emphasizing broad diversification and risk reduction.The selection process for high dividend yield and dividend growth companies within the investment portfolio is meticulously curated. I prioritize the pursuit of total return, encompassing both capital gains and dividends, rather than solely focusing on dividends in isolation. This approach ensures that your portfolio is designed to maximize returns while considering the full spectrum of potential income sources. By leveraging my expertise, you can benefit from a well-crafted investment portfolio that aims to generate extra income through dividends, while reducing risk through diversification, and prioritizing total return.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of VICI, SCHD, MO, HDV, RQI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
