Should You Buy This 7% Yielding Stock With $1,000?

In the ever-changing landscape of the stock market, investors are constantly on the lookout for opportunities that offer both stability and growth. One such opportunity that has caught the attention of many is an ultra-high dividend stock yielding 7%. With a $1,000 budget, this stock could provide a substantial passive income stream, making it an attractive option for investors, particularly those nearing retirement. But is it too good to be true? Let's dive into the details and explore the potential risks and rewards of investing in this high-yielding stock.



The Allure of a 7% Dividend Yield

A 7% dividend yield is significantly higher than the average dividend yield of the S&P 500, which hovers around 1.3%. This high yield makes the stock an attractive option for investors seeking substantial passive income. For instance, a $1,000 investment in a stock yielding 7% would generate $70 in annual income, which can be a significant addition to an investor's cash flow, especially in retirement.

Inflation Hedge and Capital Appreciation

Unlike fixed interest from bonds, dividends can grow each year, helping to combat inflation. This is particularly important for retirees who need their income to keep pace with rising living costs. Additionally, many high-dividend stocks also have the potential for capital appreciation. For example, Altria Group (MO), which has a 7.21% dividend yield, has shown strong performance, rising almost 10% year to date as of the given data.

Stability and Safety

High dividend stocks often come from well-established companies with strong balance sheets and predictable cash flow. For instance, Altria Group has a wide economic moat and is trading near its fair value estimate, indicating stability. This stability is further enhanced by the company's focus on essential needs, such as wireless services and broadband revenue, which generate predictable cash flow over an economic cycle.

Growth Potential

Some high dividend stocks also have growth potential. For example, Altria Group plans to significantly grow its smoke-free division, which could double sales of its smoke-free products to $5 billion by 2028, making it a sizable percentage of its current annual revenue of $20 billion. This growth potential, coupled with the company's pricing power, makes it an attractive investment option.

Potential Risks

While the 7% dividend yield is attractive, it is important to consider the potential risks associated with investing in high-yield dividend stocks. One risk is the company's reliance on cigarette sales, which have been declining for decades. Despite this, Altria has been able to maintain revenue growth through pricing power. However, if this trend continues, it could impact the company's ability to sustain its high dividend yield.

Another risk is the company's focus on expanding its smoke-free division, which includes nicotine pouches, electronic vaping, and potentially other products. While this segment has growth potential, it is currently a small part of Altria's operation and may not be enough to offset the decline in cigarette sales.

Comparing to Other High-Yielding Stocks

To put Altria's 7% dividend yield into perspective, let's compare it to other high-yielding dividend stocks. According to the list of 20 high-dividend stocks, the highest dividend yield is 13.36% from International Seaways Inc (INSW), followed by Two Harbors Investment Corp (TWO) with a 13.01% yield. However, these yields are from companies in the shipping and mortgage investment sectors, which may have different risk profiles compared to Altria's tobacco and nicotine business.

Altria's dividend yield is also higher than some of the top-performing dividend stocks in the first quarter of 2025. For example, CVS Health (CVS) has a forward dividend yield of 3.93%, Philip Morris International (PM) has a 3.4% yield, and Exelon (EXC) has a 3.47% yield. These companies have shown strong performance in the first quarter, with CVS Health rising 52.4% and Philip Morris International gaining 33.0%.

Conclusion

In conclusion, while Altria's 7% dividend yield is attractive, investors should be aware of the potential risks associated with investing in high-yield dividend stocks. It is important to conduct thorough research and consider the company's financial health, industry trends, and growth prospects before making an investment decision. With a $1,000 budget, this stock could provide a substantial passive income stream, making it an attractive option for investors, particularly those nearing retirement. However, it is crucial to weigh the potential risks and rewards before making an investment decision.