Unfortunately, not every high yield dividend stock is capable of maintaining its yield. When a company gets in financial trouble, cutting dividend payouts is often one of the first ways it chooses to right the ship. Two of the best ways to judge the sustainability of a high-dividend yield is to look at a company’s balance sheet and its long-term dividend track record.
Here are eight stocks to buy with dividend yields of at least 4% that have increased their dividends by an average of at least 10% annually over the past five years, according to Morningstar analysts:
- Citigroup Inc. (ticker: C)
- U.S. Bancorp (USB)
- Truist Financial Corp. (TFC)
- Fifth Third Bancorp (FITB)
- Huntington Bancshares Inc. (HBAN)
- Best Buy Co. Inc. (BBY)
- KeyCorp (KEY)
- Comerica Inc. (CMA)
Citigroup Inc. (C)
Citigroup is a diversified, global bank and financial services company. Analyst Eric Compton says Citigroup’s earnings will likely continue to be messy for some time, but investors should ignore the short-term noise and focus on core operations and Citigroup’s long-term targets. Compton says the company’s guidance for between 7% and 8% 2023 revenue growth is within reach. Citigroup was Compton’s top stock pick at the beginning of 2022, but the stock was down more than 28% last year. Citigroup pays a 4.4% dividend yield. Morningstar has a “buy” rating and a $75 fair value estimate for C stock, which closed at $46.75 on Jan. 5.
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U.S. Bancorp (USB)
U.S. Bancorp is one of the largest U.S. banks and has a diversified business model that includes traditional banking, wealth management, insurance, securities and payment services. Compton says U.S. Bancorp is one of the best-run regional banks. He says the company has diversified fee revenue, and few competitors can match its operating efficiency. Over the past 15 years, U.S. Bancorp has consistently generated returns on equity that are well above its peer group, Compton says. U.S. Bancorp has a 4.2% dividend yield. Morningstar has a “buy” rating and $60 fair value estimate for USB stock, which closed at $45.67 on Jan. 5.
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Truist Financial Corp. (TFC)
Truist Financial is a U.S. regional bank that offers consumer and commercial banking, investment services and insurance in the Southeast and Mid-Atlantic regions. Compton says that the bank’s merger-related costs will essentially disappear in 2023 and that Truist is one of the most competitive regional banks in the U.S. Compton says the company’s insurance growth engine is unique among regional U.S. banks, and he projects the unit will generate “multiple billions” of dollars in loan originations in coming years. Truist has a 4.7% dividend yield. Morningstar has a “buy” rating and $60 fair value estimate for TFC stock, which closed at $44.44 on Jan. 5.
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Fifth Third Bancorp (FITB)
Fifth Third Bancorp is a U.S. regional bank that offers retail and commercial banking, asset management and consumer lending services. Compton says Fifth Third is one of the most stable banking franchises in the Midwest, including impressive deposit share in major Ohio and Michigan cities. Compton says recent pressure on fee income is cyclical, and he remains skeptical that the fed funds rate will remain above 2.5%. In the near term, net interest income will continue to offset the bank’s fee slowdown. Fifth Third has a 4% dividend yield. Morningstar has a “buy” rating and $44 fair value estimate for FITB stock, which closed at $33.13 on Jan. 5.
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Huntington Bancshares Inc. (HBAN)
Huntington Bancshares is a U.S. regional bank offering full-service consumer and commercial banking, insurance, brokerage services and investment management mostly in the Midwest region. Compton says Huntington has completed several opportunistic bolt-on acquisitions in recent years to help expand its capital markets unit. In addition, the bank’s 2021 acquisition of TCF Financial helped Huntington cut costs significantly. Compton says Huntington may fall short of its goal of at least 17% returns on common equity, but its stock remains undervalued nonetheless. Huntington has a 4.4% dividend yield. Morningstar has a “buy” rating and $16 fair value estimate for HBAN stock, which closed at $14.26 on Jan. 5.
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Best Buy Co. Inc. (BBY)
Best Buy is a leading consumer electronics and entertainment software retailer. Analyst Sean Dunlop says the next few quarters may be bumpy for Best Buy investors, but the company’s underlying business remains “quite strong.” The consumer electronics market is extremely competitive, but Dunlop says Best Buy’s in-store fulfillment and post-sale services differentiate it from competitors. The company also has a strong online presence, generating 31% of total sales online through the first three quarters of 2022. Best Buy has a 4.3% dividend yield. Morningstar has a “buy” rating and $104 fair value estimate for BBY stock, which closed at $81.51 on Jan. 5.
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KeyCorp is a U.S. regional bank that provides consumer and commercial banking, investment banking and real estate capital services primarily in the West, Midwest and Northeast. Compton says KeyCorp’s credit quality, credit-related costs and overall operational efficiency have improved significantly since the 2008 global financial crisis. In addition, he says KeyCorp’s 2016 acquisition of First Niagara helped improve KeyCorp’s scale and efficiency. He is also bullish on the bank’s more recent acquisitions, including HelloWallet, Laurel Road and XUP Payments. KeyCorp has a 4.6% dividend yield. Morningstar has a “buy” rating and $24 fair value estimate for KEY stock, which closed at $17.84 on Jan. 5.
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Comerica Inc. (CMA)
Comerica is a U.S. regional bank and middle-market lender based in Texas that also has a strong banking presence in Michigan. Compton is bullish on Comerica’s strategy of generating value by cultivating “deep, advisor-style relationships” with small and midsize business customers. Compton says Comerica’s payment and wealth management fee revenues will also help the bank out-earn its cost of capital over the long haul. In fact, he anticipates Comerica will be one of the biggest beneficiaries of higher interest rates. Comerica has a 4.1% dividend yield. Morningstar has a “buy” rating and $88 fair value estimate for CMA stock, which closed at $66.06 on Jan. 5.
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