Hot Dividend Stocks: The 3 Best Opportunities for Passive Income Investing

As the broader stock rally broadens to some of the more “boring” corners of the market, it’s the higher-yielding dividend plays that could stand to move higher from current levels. Undoubtedly, a broadening out of the rally would benefit some of the investors who’ve rotated (away from the hottest technology companies into less-loved “value” stocks) accordingly. Though I’m no fan of rotating from one “flavor” of stock to another based on traits such as share price momentum, I completely understand why value investors would want to do this, especially after last year’s impressive action.

Of course, not all dividend stocks stand to benefit as the American economy looks to head face-first into a soft landing at the hands of the Federal Reserve. Some of the dividend players just seem better equipped to navigate remaining macro headwinds. And in this piece, we’ll look at three such names.

AT&T (T)

AT&T (NYSE:T) stock is a prime example of why catching a falling knife is a bad idea. Until now, AT&T has had trouble making money as it has struggled to break out of its multi-year bearish decline.

Though the hot rally off last year’s summer lows is encouraging, I wouldn’t treat it as the turning point — at least not yet. The stock’s long-term trend is still lower. And until it can sustain an upward spike over the coming year, investors could find themselves waiting a long time for the turnaround plan to reflect in the share price.

At 8.8 times trailing price-to-earnings (P/E), the stock is getting absurdly cheap. Then again, when hasn’t AT&T looked cheap in the past few years? Shares of T have still found a way to gravitate lower. As the cost cuts and operational improvement efforts continue, though, T stock’s next move may very well be higher.

Wolfe Research’s Peter Supino is a notable bull on AT&T stock, with a $21.00 per-share price target and a newly upgraded Outperform rating. It may not be the best telecom company, noted Supino, but it may “just might make for the best stock.”

I think he’s right. AT&T looks like a deep-value stock right now. The long-term chart looks nasty, but what’s in front of the firm really matters. For now, there’s a nice 6.51% dividend yield to look forward to.

CVS (CVS)

CVS (NYSE:CVS) stock is another company that doesn’t have the prettiest long-term chart. Not after losing around 40% of its value from its 2022 peak to its 2023 trough. With shares inching higher in recent quarters, there is hope for investors seeking deep value (shares of CVS go for 11.9 times trailing price-to-earnings) and a rich dividend yield (3.44% at writing).

The healthcare services and pharmacy firm is currently in the process of recovering after a brutal year for managed care companies. Undoubtedly, medical care costs have been quite elevated of late. Looking ahead, though, things seem somewhat brighter, with management recently reaffirming its guidance, calling for $12 billion in operating cash flows for 2024.

Only time will tell if CVS enjoys a U-shaped recovery over the coming year. Regardless, the dividend, low beta (0.5 at writing), and low valuation are enough reasons to hold the name.

McDonald’s (MCD)

McDonald’s (NYSE:MCD) stock has been retreating again after briefly hitting the $300 per-share milestone. Shares are now down around 7% from their all-time high, with a double top (it kind of looks like the golden arches) technical pattern that may be in the cards.

As the fast-food firm moves on from a rough quarter that saw sales from certain customers dry up, it will be interesting to see what big changes and surprises it has up its sleeves in the second half. Loyalty, lower prices, higher-quality food and continued menu innovation could be key factors in attracting crowds.

Indeed, McDonald’s pricing has gotten a tad out of hand these days. Some consumers have had enough. While home cooking will always be cheaper than going out to eat or ordering in, it’s evident that McDonald’s needs to reduce prices if it’s to continue to be perceived as a defensive company that can fare well in unfavorable economic times.

As the company improves its burger buns and takes steps to offer more attractive prices, I think MCD stock has the means to rebound from its latest slip, perhaps in the second half of the year. Until then, the stock’s modest 24.1 times trailing price-to-earnings multiple seems to offer a great value proposition for passive income investors hungry for its 2.39% dividend yield.

On the date of publication, Joey Frenette owned shares of McDonald’s. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.