Dividend investing is great when it's done right, but finding a stock that lets you sit back and collect a quarterly payout isn't always easy. You have to choose the right stocks, monitor them, and make sure they don't turn into yield traps -- dividend payers that offer a high yield only because the business is declining, putting them at risk of a dividend cut. It's also a challenge to find dividend stocks that can grow their stock price over time as well as their dividend.
Some of these high-yield dividend stocks, however, do have the potential to safely deliver solid gains on both fronts. Let's look at two such stocks that could double in price under the right circumstances.
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1. Philip Morris International
Philip Morris International (NYSE: PM) might seem like a surprising choice. After all, it's no secret that cigarette consumption has been declining for years, but Philip Morris is more than a conventional tobacco company.
The No. 1 brand in its portfolio for growth had long been Marlboro, but that is no longer the case. It's now Iqos, its heat-not-burn product that has been growing rapidly around the world, paving the way for the company's transition away from smoking. Iqos now accounts for more than 50% of revenue in 25 of the company's markets, and smoke-free products generated nearly 40% of revenue and gross profit of more than 40% year over year in the fourth quarter.
Of Philip Morris' $9 billion in revenue, $3.6 billion came from smoke-free products, and revenue from that category jumped 13.6% year over year in the quarter, driving overall revenue up 8.3% to $9 billion.
Management has also managed the decline of its cigarette business well; cigarettes sold fell by just 1.4% to 613 billion in 2023, while heated tobacco units grew by 14.7% to 125 billion.
In addition to Iqos, the company has a number of other fast-growing smoke-free products, including nicotine pouches like Zyn, and Snus, a Swedish oral tobacco product, both of which it gained in its acquisition of Swedish Match in 2022. Sales of nicotine pouches more than tripled year over year in the U.S. in the fourth quarter to 116.3 million units, and sales of Scandinavia-focused Snus rose 41% year over year to 57.1 million, a clear sign of success with those products.
Profits continued to grow despite the decline in cigarette volumes, with adjusted operating income up 3.3%, or 3.7% on an organic basis to $13.3 billion. And profit growth could accelerate as its rising smoke-free business makes up more of overall revenue.
Though the stock has shown a slow climb over the past decade, Philip Morris offers a 5.7% yield, making it an attractive dividend stock, and the share price has the ability to double over time with the growth of next-gen products.
It could take a decade, but as the smoke-free business grows, the share price should move higher over time.
2. Outfront Media
Seasoned investors know that real estate investment trusts (REITs) are great places to look for dividends, and there's one REIT that offers both a high yield and the potential for the stock to double. That's Outfront Media (NYSE: OUT), one of the largest out-of-the-home (OOH) advertising companies in the world with a focus on billboard, transit, and mobile assets in North America. In addition to having a growing and modernizing category to penetrate, the stock currently offers a dividend yield of 7.5%.
Growth in the OOH category is starting to accelerate as it transitions to digital advertising that has the potential to update outdoor ad campaigns to adjust to weather and traffic, and even target individual passersby using their smartphones.
Outfront could be one of the biggest winners from this trend because it offers programmatic buying for OOH displays, allowing marketers to automate their campaigns based on data. Its digital direct ad server improves ad targeting.
New technology generally means a monetization opportunity, and Outfront looks to be in a good position to take advantage of the transition to digital billboards, having cited new technologies for higher prices in its fourth-quarter report. It also forecasts a strong media market in 2024 for both itself and the entire OOH industry.
That opportunity is one big reason Outfront Media stock can double, but the other is that the stock is still down by nearly 50% from its peak in early 2022 before the ad market collapsed. As that market recovers, shares should continue to gain; they're already up roughly 65% from their low just a few months ago.
Even better, there's room for its $0.30 per share in quarterly dividends to go higher if it returns to its pre-pandemic dividend level of $0.38 per share per quarter.
If the ad market recovery remains on track, Outfront could double in the next year or two as investors return to this high-yielding cyclical REIT.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Outfront Media and Philip Morris International. The Motley Fool has a disclosure policy.
