High-yield dividend stocks can be a great way to protect your portfolio from market volatility. Stocks that pay yields of 4% or higher can soften the blow from marketwide downturns through their elevated quarterly distributions. These types of equities also tend to hold up better in moody markets. Income investors, after all, rarely exit top-notch dividend plays because of the long-term nature of this particular strategy.
Which high-yield stocks are the most compelling buys right now? From a fundamental standpoint, legacy car manufacturer Ford Motor Company (F -0.40%) and the Japanese pharma giant Takeda Pharmaceutical (TAK 0.99%) both look exceptionally cheap right now. Read on to find out more about these two high-yield dividend stocks.
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Ford
Ford, and most of its contemporaries, took a big step backward last year over concerns about the impact of rising interest rates on demand for new vehicles. The company's shares, in fact, lost a staggering 44% of their value in 2022.
The direct consequence of Ford's plummeting share price is that its annualized dividend yield ballooned to a whopping 4.97%. The carmaker's shares are also trading at an eye-catching 65% discount, relative to Morningstar's latest fair-value estimate of $20 per share, following this beeline move lower.
Can Ford close this latent valuation gap? There is a good chance this top auto manufacturer can regain its footing in 2023. A few tailwinds support this assertion.
First off, the anticipated drop in demand for vehicles in the U.S. and abroad failed to materialize over the course of 2022. Demand remains strong, despite hot inflation and rising interest rates.
Second, Ford is in the midst of a multipronged reorganization. The plan centers on improving operational efficiency, investing $50 billion into electric vehicle development, and streamlining international product offerings.
Although these strategic moves will take time to bear fruit, the auto giant appears to be headed in the right direction. Income investors, in turn, may want to take advantage of this sharp correction in Ford's stock.
Takeda Pharmaceutical
Japanese drugmaker Takeda Pharmaceutical had a solid 2022. Thanks to its ongoing deleveraging effort, the strong organic growth of key products like ulcerative colitis medicine Entyvio and hereditary angioedema drug Takhzyro, and its noteworthy 4.29% annualized yield, Takeda's shares posted a stellar 14.4% gain in 2022. Even so, Takeda's stock is still only trading at a meager 11.4 times forward earnings.
Why isn't Takeda's stock garnering a higher multiple? The core reason it has failed to earn even an average premium, when most top-shelf pharma stocks trade at more than 15 times forward earnings, is that investors aren't entirely sure what to make of the company's long-term growth plan. The Japanese pharma titan is staring down key patent expirations for ADHD medication Vyvanse this year and another one for Entyvio in 2026. Moreover, its recent business development moves in autoimmune disease and cancer probably won't contribute to earnings in a positive manner anytime soon.
What's the bottom line? Takeda stock sports a highly attractive yield and valuation at current levels. However, the company will have to execute on multiple fronts to blunt the impact of aging medicines on its top and bottom lines in the years ahead. As a result, this inexpensive high-yield dividend stock does have some important risk factors to consider before buying it as a passive-income vehicle.
