5 Best High Dividend Stocks to Buy in July 2021

Picking the best dividend stocks involves more than just screening who is offering the highest yield. A closer look at the business cash flow generation capacity, financial health, and growth prospects is also needed to make sure that the dividend is sustainable.

To save you some time, the following is a list of five high-dividend stocks with underlying financial conditions that are strong enough to support their distributions for the coming two to three years.

1. British American Tobacco (LON: BATS)

Dividend yield: 7.1%

BTI stock has been battered due to an emerging trend of socially conscious investing that categorizes the tobacco industry as one that is detrimental to society.

A combination of this negative momentum toward British American products and some financial hiccups along the way have pushed down the share price and while increasing the dividend yield to its currently attractive level.

Last year, the company managed to produce $13.4 billion in cash from operations and paid dividends of roughly $6.5 billion. Meanwhile, BATS had over $4.6 billion in cash and equivalents by the end of the fourth quarter of 2020.

For the entire year, the company expects to report 5% revenue growth, which should result in around $9 billion in profits and approximately $13.5 billion in operating cash flows based on the firm’s historical conversion ratios. This should result in a dividend coverage ratio of approximately 2, which indicates a high level of stability for upcoming dividend distributions.

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2. GlaxoSmithKline Plc (GSK)

Dividend yield: 5.4%

GlaxoSmithKline recently announced that it plans to spin off its consumer health care business, which will lead to the formation of New GSK – a new company that will be focused on generating top and bottom-line financial growth after the process is completed.

Based on the management’s forecasts, New GSK should generate approximately £10 billion in cash from operations while offering a dividend of 55p in 2022 and a progressive dividend policy starting at 45p per share from 2023 and forward.

Meanwhile, current holders of GSK shares will receive a special dividend of £8 billion from the Consumer Healthcare unit.

According to the firm’s latest quarterly report, this would result in a special dividend of 160p per share to be paid before the demerger takes place – which is expected to occur by mid-2022.

Adding the 80p per share dividend that is expected to be paid this year, the special dividend seems fairly attractive. Moreover, at the current price of 1,411p per share, the forecasted 55p 2022 dividend would still offer an attractive 3.8% yield while the 45p proposed dividend for 2023 will also be appealing as it would result in a 3.2% yield.

Overall, from 2021 to 2023, shareholders should receive approximately 340p in dividends on their 1,411p per share investment for a total 24% gain in dividends alone.

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3. VICI Properties (VICI)

Dividend yield: 4.2%

VICI Properties is the owner of the famous Las Vegas Caesars Palace and many other gaming, hospitality, and entertainment properties in the United States. Despite the firm’s exposure to these virus-sensitive sectors, this REIT still managed to grow its revenues last year to $1.22 billion while its adjusted funds from operations (AFFO) grew 28.7% compared to the previous year.

AFFO per share landed at $1.64 last year while the company distributed $1.32 in dividends for investors.

The progressive recovery of the travel and leisure industry moving forward opens up the possibility for further dividend increases on top of last year’s 10.9% increase. This view is supported by the management’s guidance, as VICI expects to see its AFFO per share rising to around $1.87 by the end of 2021, which results in a 14% jump compared to last year’s figure.

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4. BHP Group (BHP)

Dividend yield: 4.1%

The BHP Group is a diversified Australian energy and mining company that focuses on petroleum, iron ore, and coal extraction.

The firm has benefitted from the latest uptick in commodity prices, with sales already surging past pre-pandemic levels in the past twelve months while profit margins have remained fairly stable.

The company distributed $1.01 in dividends per share by the end of its latest fiscal semester and the market appears to be expecting that distributions should remain the same this year. This $1.01 dividend represented a $5.1 billion disbursement for the firm during the last semester. Dividend coverage ratio for the period came in at 1 as the firm produced $5.2 billion in free cash flows.

If commodity prices remain at their current levels, it would be highly likely that the firm will either maintain or partially slash its current dividend in the following 12 months. Even if the dividend is cut by a quarter, it would still be fairly attractive at around 3.1% while well covered based on the company’s historical cash flow generation capacity.

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5. Kimberly-Clark Corporation (KMB)

Dividend yield: 3.4%

Kimberly-Clark is one of the most attractive defensive dividend stocks in the market as it displays a historical average dividend coverage of 1.5, offering a fairly stable 3.4% yield at the moment.

The firm was able to push its sales 3.7% higher last year while profit margins improved as well, resulting in diluted EPS coming 10% higher compared to 2019 on top of a 55% jump the company’s bottom-line profitability saw in 2019.

Meanwhile, analysts are expecting to see KMB’s earnings climbing 2% this year and as much as 10.6% the year after which should result in the continuation of the firm’s historical dividend hikes. From 2012 to 2020, Kimberly has ramped up its dividend payments at a compounded annual growth rate of 8.6%.

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