3 Blue-Chip Stocks With Dividend Yields Above 3%

In the current environment, many investors are on the hunt for dividend stocks with dividends above 3% to pad out their portfolios. There are a few reasons dividend stocks are worth considering. The first is obvious — income. When you own a growth stock that doesn’t share out part of its profits as dividends, you see your wealth rise on paper. However, you’ve got to sell the stock to book in the gains. Dividend stocks allow investors to capitalize on a company’s increasing value while also enjoying regular payouts they can use either to reinvest or spend elsewhere.

In general, dividend stocks tend to be relatively mature companies. Because they’re well past the growth phase, management is willing to share a slice of the profits rather than reinvest it into the business. However, it’s important to keep an eye on how much is being returned to shareholders. That’s where a dividend coverage ratio comes in handy. It compares net income to dividends paid to shareholders and tells you how many times the group can pay dividends to shareholders. Anything over one is considered a good number because it means dividend payments are fully covered by net income. Anything under one suggests the company’s payouts are unsustainable and will likely be on the chopping block soon. 

It also makes sense to consider the long-term prospects for dividend stocks with yields above 4%. The economic prospects are looking rather shaky at the moment, so companies teetering may not be resilient enough to continue paying out hefty returns. For that reason, defensive sectors and companies leading in their field make for good picks.

Dividend Stocks With Yields Above 3%: Cal-Maine Foods (CALM)

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Soaring egg prices over the past year sent Cal-Maine Foods (NASDAQ:CALM) into the stratosphere, but with shares back down on earth and a dividend yield just shy of 9% on offer, now is a great time to consider the egg producer. Notably, the group’s had a rough quarter, and that’s taken some of the shine off the stock. The group saw selling prices and volumes drop as goldilocks conditions within the industry evaporated. But that doesn’t mean Cal-Maine is a dud. In fact, it’s quite the opposite.

Egg prices may be down compared to last year’s highs, but they seem to be rebasing at a higher level compared to where they were between 2016 and 2022. The group’s return on capital employed, measuring how much capital the company uses to operate and generate profits, is an impressive 45%. That suggests there’s plenty of growth ahead, making it a worthwhile investment for long-term income investors. 

Unilever (UL)

The blue Unilever sign next to the desk inside de head office in Rotterdam, the Netherlands.

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Unilever (NYSE:UL) pays investors 3.9%, and thanks to its impressive portfolio of well-known brands, it should continue to do so without issue. That makes it one of the top picks among dividend stocks with dividends above 3%. The group has been working to push price increases onto its consumers to cope with rising costs. So far it has been successful with only a small drop in volumes. Now the price hikes are starting to ease, which should make things easier in the future.

Add that to an ongoing efficiency program designed to zero in on the brands responsible for the majority of sales, and you have a recipe for a leaner, more profitable organization moving forward. Unilever’s dividend payouts are supplemented by buyback programs, and all of those returns are underpinned by strong free cash flow and a solid balance sheet. That means investors can be relatively certain their dividend payments will continue no matter the economic weather, a confidence that’s hard to find in difficult times like these. 

British American Tobacco (BTI)

British American Tobacco logo on a building

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It would be impossible to make a list of stocks with dividends above 3% without including a tobacco company. Tobacco stocks are well-known as favorites among income investors because they tend to offer juicy, reliable yields. The tobacco industry comes with plenty of controversy, with many people refusing to invest. It also has a declining user base as tobacco consumption falls, so there are risks to be mindful of.

That said, British American Tobacco (NYSE:BTI) is an industry leader with impressive operating margins. The group’s exposure to emerging markets has offset some weakness in the United States. New categories like vapes and heated tobacco are also showing signs of positive growth, an avenue that could prove useful if traditional cigarettes continue to decline. With a 65% payout ratio and a dividend yield just shy of 10%, British American Tobacco is one of the best income stocks you can get your hands on right now. 

On the date of publication, Marie Brodbeck held a long position in BTI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.

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