2 Dividend Stocks Yielding Over 7% to Buy

Income-focused investors actively pursuing high yielders should understand what they stand to sacrifice by reaching for a yield that’s north of the 7% mark. While I wouldn’t say 7% is entering the “danger zone” for dividend cuts and all sort, I do think that a sizeable dividend commitment could take away from other areas of a business that could fuel capital gains upside.

Indeed, more yield tends to come at the cost of growth, but it doesn’t always have to, especially if we’re dealing with a firm that’s found itself on the right side of secular tailwinds. And if the rest of the market is, in fact, undervaluing the company in question, perhaps one can have their towering yield with upside that’s at least in line with the market averages.

Indeed, it’s not easy to catch high-yielders right before they reach an inflection point.

Though it’s tough to tell which stock will be the next AT&T (NYSE:T), a massive laggard and high-yielder turned market darling, with 90% gains posted in the past two years, I do think that the plan is every bit as important as the size of the yield when it comes to bruised dividend stocks that have been caught in a downdraft.

In this piece, we’ll check in two stocks that I think fit the bill as companies with yields north of 7% that are on the right track and may be due for a continued ascent as more investors better appreciate the impressive forward-looking trajectory. Time will tell if they’ll experience an AT&T-esque comeback. Either way, investors keen on the outsized yields may wish to think about locking them in before any upside surge drives the yield back down to more reasonable levels, perhaps closer to historical norms.

Pfizer

Pfizer (NYSE:PFE) stock is a perennial underperformer that now sports a 7% yield after imploding close to 60% from its COVID heyday at the end of 2021. Undoubtedly, the patent cliff and a lack of cash cows to step in the place of the fading COVID business have made PFE shares rather difficult to hang onto. Despite the relative lack of catalysts and momentum, I do think there’s an opportunity for income investors to snag the historically elevated yield before the firm’s late-stage pipeline releases a product that can support earnings growth.

In the meantime, it’s tough to time an entry into the value trap. With earnings on tap for early August and not all that much in the way of optimism on Wall Street, I’d be tempted to hold off on the deep-value play unless you need a safe 7%-yielder at all costs.

Patent expirations have been a serious revenue drag, and until the firm delivers an oncology blockbuster from its pipeline (there’s certainly potential), it’s tough to gauge what Pfizer’s next three years will look like. Personally, I’d wait for more catalysts before loading up, given the lack of catalysts and the magnitude of headwinds facing the firm. For now, nibbling on the way down seems like the best move for those keen on giving their portfolio a yield boost.

Conagra Brands

Conagra Brands (NYSE:CAG) stock has imploded this year, sinking more than 30% year to date. That brings CAG shares down a grand total of 53% since its January 2023 peak. Suddenly, the name yields 7.3%, making it one of the most appealing targets of income investors in the market for an ultra-high-yield. The consumer-packaged goods firm behind Slim Jim and Healthy Choice is facing pressure at the grocery store. But with a plan to cut out color additives, perhaps consumers could be in for an even healthier choice in the middle aisles of the grocery store.

After another wave of analyst downgrades and lingering inflationary pressures, it’s tough to get behind the name. However, I’m a big fan of the portfolio of brands and the rock-bottom price of admission to be had at less than $20 per share. At the time of writing, the stock goes for 8.0 times trailing price-to-earnings (P/E), and with a 0.11 beta, you’re essentially getting a name that’ll be less affected by the next market-wide correction.

After all, CAG stock has already served more than its fair share of time in the penalty box. With so much of the inflation impact already priced in, I think it’s time to hit the buy button. As the firm pivots to better meet consumer needs while maintaining its high value proposition, I do see a bull-case scenario that could help the firm claw back recent losses.

In the meantime, the dividend looks pretty safe. Though, investors would be wise to monitor the payout ratio as headwinds mount.

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