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With a 3% yield and a 46-year streak of annual payout growth, it's no wonder that PepsiCo continues to be a staple of many income-focused portfolios. The company has built a massive global distribution network and a diversified lineup of billion-dollar snack and beverage brands that should help it to keep cash flowing back to shareholders, but it's not the only great income play that investors should keep an eye on.
We asked three of our Motley Fool contributors to spotlight a company that pays even bigger dividends than Pepsi and stands out as a worthwhile portfolio addition. Read on to see why they identified Kohl's Corporation (NYSE: KSS), Carnival (NYSE: CCL), and AT&T (NYSE: T) as high-yield stocks that deserve your attention.
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Invest in this family favorite?
Rich Smith (Kohl's Corporation): I'll tell you an investing tip I learned early on: Check your credit card bill every month. If you find a company name on there where you -- or your spouse or your kids -- are racking up multiple hundreds of dollars in charges, that might be a good place to invest. And if that company happens to pay a dividend, why, then that also gives you a chance to get back a little bit of the money you are spending every month.
In my family, that company is Kohl's, which is apparently our go-to store for buying clothes for the kids. (I don't know for sure -- I don't do the clothes shopping around here. But that's what the numbers tell me.)
What I do know, when I look at the numbers on Kohl's stock, is that this is a stock selling for less than 15 times earnings (the average stock on the S&P 500 costs 22 times earnings) despite being pegged for 10% earnings growth, right around the market average. It's a stock that generates nearly twice as much free cash flow as it reports as GAAP earnings -- $1.5 billion versus $801 million, according to S&P Global Market Intelligence.
Oh. And it's a stock that pays its shareholders a generous 3.8% dividend yield -- about 27% more than Pepsi does.
Cruise to a higher yield
Demitri Kalogeropoulos (Carnival): Cruise leader Carnival isn't steaming ahead these days. Instead, the company's growth rate has dropped to below 1% in 2019 from the 3% or higher that investors have enjoyed in recent years. But that slowdown doesn't mean shareholders can't reap big rewards from owning this high-yield dividend stock.
Demand is holding up well as vacation bookings are on pace to generate another record year for passenger volume amid steady prices. Sure, Carnival is getting more of its sales gains from a rising capacity rather than the soaring ticket volumes of past years. That's a consequence of sluggish industry growth. But it's also a more stable way to expand sales.