A high dividend yield can appear risky to income investors because the initial thought may be that it isn't sustainable or it's due for a cut. But dividend yields are simply a moving calculation that reflect the dividend the company pays and the current share price. The lower the share price is, the higher the yield is.
Even a temporary drop in price can give investors the opportunity to lock in a high yield. As long as the company keeps paying the dividend, you'll be earning a higher rate than investors who buy the stock when it's at a 'safer' yield (i.e. a higher share price).
Tobacco giant Altria Group (NYSE:MO) fell into oversold territory in October after the company's latest earnings results came out. Net revenue of $6.8 billion dropped 4.7% year over year. But for income investors, the big question is the safety of its dividend. Altria targets a dividend payout ratio that's 80% of its adjusted diluted earnings.
And for 2021, the company projects that its adjusted diluted EPS will be around $4.60. Altria recently raised its payouts and on an annual basis it is paying shareholders $3.60 per share. That would put its payout ratio at 78% and just under its target.
While there isn't a whole lot of room there before it breaches the 80% mark, I would be surprised for a company with the track record that Altria has to halt its dividend. Even in the worst-case scenario, if there isn't another increase, investors could still be collecting a top dividend yield of more than 8% from this stock.
Although this isn't an income investment I'd suggest buying and forgetting about, Altria looks like it could be solid pick up, at least in the short term.
