Here Are My Top 2 High-Yield Dividend Stocks to Buy Now

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These dividend stocks look like great buys.

For long-term investors, dividends are a critical piece of the performance puzzle. Here’s an almost unbelievable statistic from Harford Funds: Since 1960, 85% of the S&P 500‘s cumulative total return was tied to reinvesting dividends.

However, not all dividend stocks are created equal. High yields can sometimes come with high risks, so investors should focus on high-quality companies capable of sustaining and growing their dividend payments over time. Two of the best bets right now are British American Tobacco (BTI -0.83%) and Tanger (SKT -1.03%).

British American Tobacco

Consumption of cigarettes and other combustible products is in decline, particularly in the U.S. British American Tobacco expects global tobacco industry volume to be down around 3% this year, and the company has seen a 9% decline in the U.S. year to date.

While British American Tobacco’s core business is in decline, the company is having success growing its so-called “new categories.” These include vaping products under the Vuse brand, tobacco heating products under the glo brand, and modern oral products under the Velo brand.

The Vuse brand of vaping products currently has a global value share of 41.1% in the company’s key markets and a 51.5% share in the U.S. The glo brand of tobacco heating products enjoys a 16.8% volume share in key markets, and the Velo brand of modern oral products has a 27% volume share in key markets. The company expects volumes and revenue to accelerate across these businesses in the second half of the year.

Despite weakness in traditional tobacco products, British American Tobacco expects organic revenue to grow by a low-single-digit percentage this year at constant currency, with similar growth for adjusted operating profit.

This profit growth will help support the dividend, which currently yields about 9.4% based on the most recently announced quarterly dividend payment. British American Tobacco has also started buying back its stock, which is funded by the monetization of its stake in ITC.

The company plans to spend 700 million pounds (about $889 million) on buybacks this year and 900 million pounds (about $1.1 billion) in 2025, all while working to bring its net debt to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio down to a range of 2.0 to 2.5 by the end of this year.

The main risk for British American Tobacco shareholders is that revenue and profit from new categories may not grow fast enough to offset declines in cigarette consumption. But with the stock trading for less than 7 times forward earnings, there’s a significant margin of safety for investors willing to take that risk.

Tanger Factory Outlets

Tanger operates 40 open-air outlet centers near tourist destinations and within suburbs of fast-growing cities in the U.S. and Canada. The company’s tenant base is diversified, with retail partners outside the top 10 accounting for about two-thirds of the annualized base rent.

Tanger’s business suffered during the pandemic, but things are now mostly back to normal. Occupancy has rebounded to 96.5%, not too far off from historical levels, and rent renewals and retenanting have been yielding double-digit percentage increases in rents.

Tanger has multiple ways to grow. Beyond improving metrics at its existing outlet centers, the company can open or acquire additional outlet centers and monetize adjacent properties. While Tanger’s results will be somewhat sensitive to economic conditions, the value proposition of name-brand merchandise at discounted prices should hold up in any economy.

Tanger expects to grow same-center net operating income by between 2.25% and 4.25% this year, which will lead to adjusted funds from operations between $2.03 and $2.11 per share. Based on the current stock price, the price-to-FFO ratio sits at about 13.

Tanger’s dividend isn’t quite as generous as British American Tobacco’s, but the stock still offers an attractive yield and the potential for dividend growth. Based on the latest quarterly dividend payment of $0.275, Tanger stock currently yields just over 4%. The dividend has grown significantly over the past few years after a brief pandemic-driven pause in 2020.

Tanger isn’t the bargain it was coming out of the pandemic when pessimism was running high, but it’s still an attractive dividend stock for long-term investors.

Timothy Green has positions in British American Tobacco and Tanger. The Motley Fool recommends British American Tobacco P.l.c. and Tanger and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.