2 Very Overrated And 2 Very Underrated High Yield Dividend Stocks

Core Viewpoint - High-yield stocks can provide significant passive income and total return potential, but some stocks are overrated due to poor capital allocation and growth prospects, while others are underrated despite strong fundamentals [1]. Overrated High-Yield Stocks AT&T (T) - AT&T offers a 6.5% NTM dividend yield with a 51% expected payout ratio for 2024, appealing to income-focused investors [2]. - The company has misallocated capital on acquisitions, leading to poor total return performance and a high debt burden, resulting in a dividend cut [2]. - Current focus on debt repayment and core business investment limits cash available for meaningful dividend growth, which is expected to lag behind inflation [2][3]. 3M (MMM) - 3M has a 6.6% NTM dividend yield and a 77% expected payout ratio for 2024, but its earnings per share have stagnated since 2016, with a meager 0.9% CAGR over the past decade [4]. - Dividend growth has slowed significantly, with a 0.3% increase in 2023 and similar expectations for 2024, leading to a -4% total return over the past decade [4]. - Analysts forecast a -1.4% earnings per share CAGR through 2028, indicating limited future growth potential [4]. Underrated High-Yield Stocks W. P. Carey (WPC) - WPC has transitioned away from office properties, focusing on high-quality industrial and retail assets, positioning it for long-term growth [5]. - The company has a BBB+ credit rating and significant liquidity from office sales, allowing it to navigate high capital costs and fund acquisitions [5]. - With a 6.2% NTM dividend yield and a strong cash flow, WPC is expected to see accelerated dividend growth and potential double-digit annualized total returns [5]. Kinder Morgan (KMI) - KMI has improved its leverage ratio from 5.3x in 2016 to 4.2x in 2023, with expectations to further reduce it to 3.9x [6]. - The company has stabilized its cash flow profile through long-dated contracts and regulated assets, enhancing its growth profile [6]. - With a 6.2% dividend yield and an attractive EV/EBITDA ratio of 9.2x, KMI presents a compelling total return opportunity [6]. Investor Takeaway - High-yield investing requires careful selection beyond just attractive yields, favoring stocks with strong fundamentals and growth prospects over those burdened by challenges [7].