I Own 4 High-Yield Dividend Stocks. Here's Why I Own Each One.

When paired with dividend reinvestment, high-yield dividend stocks have demonstrated remarkable outperformance compared to the S&P 500 over holding periods of 20 years. This outperformance stems from a fundamental truth: A sustainable high dividend yield often serves as a powerful indicator of intrinsic value.

Companies that maintain above-average dividend yields over extended periods typically share key characteristics. They generate robust free cash flows, maintain resilient business models, and employ shareholder-focused management teams. However, high yields can be a double-edged sword, sometimes signaling formerly dominant companies navigating challenging transitions that may require significant recovery time.

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Over the past year, I've strategically added four blue chip, high-yield stocks to my portfolio, with plans to increase these positions over time. Let me share my investment thesis for each holding.

Healthcare leader

AbbVie Inc. (NYSE: ABBV) represents my top holding in the healthcare sector. I'm particularly impressed by how the company's immunology franchise continues driving growth despite Humira's patent expiration in the U.S. market.

AbbVie stock trades at a forward price-to-earnings (P/E) ratio of 14.2, representing a significant discount to the S&P 500's 23.6 multiple. The drugmaker's valuation looks compelling given its robust clinical pipeline, featuring over 90 compounds, devices, or indications in development individually or through collaborations.

Regarding the pharmaceutical giant's dividend metrics, AbbVie stock pays a generous 3.85% yield backed by a solid balance sheet and diverse revenue streams. The company's 213% payout ratio might raise eyebrows, but its strong free-cash-flow generation and a clear path to earnings growth from new drug launches should keep distributions safe.

Banking giant

HSBC Holdings plc (NYSE: HSBC) gives me prime exposure to Asian financial markets where rising affluence drives demand for banking services. The bank's extensive global network spans 60 countries and territories, with $3 trillion in assets and approximately 41 million customers across personal, wealth, and corporate segments.

HSBC stock trades at a forward P/E ratio of 8.2, well below the broader banking industry average of 12.9. This discount appears excessive given the bank's dominant position in high-growth Asian markets, and its strong capital position enables continued investment in digital-banking capabilities.

On the dividend front, HSBC offers a compelling 3.9% yield supported by a conservative 50% payout ratio. The bank's diversified revenue streams and fortress balance sheet give me confidence in both dividend sustainability and the potential for future distribution growth.

Value opportunity

Pfizer Inc. (NYSE: PFE) is my favorite turnaround play in the pharmaceutical space. The company generates over $60 billion in annual revenue from key therapeutic areas including oncology, immunology, and rare diseases.

Pfizer stock trades at a forward P/E ratio of 8.87, sitting considerably below the S&P 500's 23.6 multiple and putting its shares squarely in bargain territory. This valuation disconnect has created an opportunity to buy a world-class pharmaceutical company at a steep discount to the broader market.

In terms of the pharma giant's dividend profile, Pfizer sports an eye-catching 6.59% yield, though its troubling 222% payout ratio demands close attention. The company's diverse pharmaceutical portfolio and robust free-cash-flow generation provide some comfort for dividend sustainability.

Despite these clear risks, I own this high-yielding big pharma stock because I believe its global reach and vast product portfolio will eventually drive a significant business turnaround. I've accumulated shares at these depressed levels to lock in the historically unprecedented yield.

Smoke-free innovator

Philip Morris International Inc. (NYSE: PM) 's leadership in the global transition toward reduced-risk tobacco products caught my attention. I'm watching closely as the IQOS heated tobacco system drives growth, while traditional cigarette volumes decline gradually.

Philip Morris stock trades at a forward P/E ratio of 18.3, below the S&P 500's 23.6 multiple. However, it is at a premium to tobacco industry peers, which trade at an average multiple of 12.1 times forward earnings. I believe this premium is justified by the company's significant lead in reduced-risk products.

Turning to the tobacco giant's dividend metrics, it's clear that Philip Morris has a somewhat concerning 83% payout ratio, raising concerns about the sustainability of its cash distributions. Still, the stock's healthy 4.24% yield should be safe over the long term thanks to management's commitment to shareholder returns and its high-margin business, which produces stable and robust free cash flows.

Building long-term wealth with dividends

High-yield dividend investing requires balancing attractive current income against dividend-sustainability risks. These four companies represent my highest-conviction income investments for 2025 and beyond due to their compelling mix of yield and sustainability.

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HSBC Holdings is an advertising partner of Motley Fool Money. George Budwell has positions in AbbVie, HSBC Holdings, Pfizer, and Philip Morris International. The Motley Fool has positions in and recommends AbbVie and Pfizer. The Motley Fool recommends HSBC Holdings and Philip Morris International. The Motley Fool has a disclosure policy.