Owning profitable industry leaders is a surefire way to grow your savings for retirement. Many of these companies pay out a portion of their annual profits to shareholders in dividends.
The best time to invest in the strongest companies is when they are experiencing temporary headwinds that are weighing on their share price. The lower share price sends their dividend yields higher, which means shareholders get more bang for their buck.
Here are two leading companies paying high yields that can reward shareholders for years to come.
1. Hershey
Shares of The Hershey Company (NYSE: HSY) have fallen 28% from their previous peak. Inflation and higher cocoa prices have resulted in lower consumer demand and reductions in retail inventory levels. This has made it challenging to grow sales, but it's also providing a rare opportunity to buy shares of this dominant confectionary business at a high dividend yield.
Hershey's sales and adjusted earnings per share were down 16% and 36% year over year, respectively, in the second quarter, but those numbers are somewhat misleading. After adjusting for planned inventory adjustments and a shift in retail shipments expected to move to the second half of the year, adjusted sales were roughly flat over the year-ago quarter.
The stock has held up well in 2024 despite the sales pressure, which reflects the intrinsic value of the Hershey brand and its leading market share in the $100-plus billion chocolate confectionary market. Hershey should do well with its new seasonal launches later this year, such as Shaq-a-licious Gummies in partnership with former NBA star Shaquille O'Neal, and new Halloween-themed products from Reese's.
People aren't going to stop buying chocolate. Even with high inflation over the last few years, Hershey generated $1.8 billion in net profit on $11 billion of sales over the last four quarters. This isn't the first time this 125-year old brand has experienced weak sales, and it won't be the last.
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The company pays out 55% of its earnings in dividends. It raised the dividend by 15% earlier this year to a quarterly payment of $1.37 per share. At this rate, its forward dividend yield is a delicious 2.74% -- more than double the S&P 500 average of 1.32%.
2. UPS
Shares of UPS (NYSE: UPS) are down 45% from the previous high, as the delivery company wrestles with higher labor costs and revenue headwinds. Second-quarter revenues were slightly down compared to the year-ago quarter, as more customers opted for lower-priced shipping services. However, UPS is still a profitable business that will continue to make dividend payments to support an attractive dividend yield of 5% -- its highest in history.
Over the last year, UPS generated $5.2 billion in profit on $89 billion in revenue. The business is working through the challenging environment by identifying options to trim costs. Its Fit to Serve initiative should save the company about $1 billion by the end of 2024.
To counter the customer shift to lower-priced services, UPS is exploring other revenue opportunities. It is looking to serve more package volume from small businesses and making pricing adjustments to improve its revenue per piece.
The second quarter showed a notable improvement in U.S. average daily volume, which grew for the first time in over two years. UPS expects to generate full-year free cash flow of $5.8 billion and pay out $5.4 billion in dividends. The cost savings and pricing actions it plans to take should improve profitability heading into next year and allow for further dividend increases.
UPS raised the quarterly dividend by $0.01 to $1.63 per share within the last year. This brings the forward yield to 5.05% -- more than triple that of the S&P 500. The stock's high yield suggests it is undervalued considering the long-term tailwinds in online shopping, which are providing more delivery opportunities for the package delivery leader.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Hershey. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy .
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