Turnaround stocks can sometimes take time to provide shareholders with meaningful returns. Investing in turnarounds requires patience. It often takes months or even years for a turnaround to materialize.

For this reason, investors buying shares of beaten-down stocks should focus on high-yield stocks with sustainable dividends. For example, Newell Brands (NWL) is in the middle of a major turnaround effort, which is showing signs of real progress.

In the meantime, Newell stock has a nearly 6% dividend yield. As a result, it is one of the best high-yield dividend stocks for 2019.

Overview and Recent Events

Newell Brands is a consumer products manufacturer. Its core brands include Rubbermaid, Oster, Sunbeam, Mr. Coffee, Ball, Sharpie, Paper Mate, Elmer’s, Yankee Candle, and Coleman. Newell has a large product portfolio with brands that hold market leadership across their respective categories.

At the same time, the company is involved in a significant turnaround. It had arguably become too bloated in recent years, with too many brands in low-growth categories that weighed the company down. In an effort to become more efficient, Newell is selling under-performing brands that are no longer a part of its future growth strategy.

For example, Newell sold the Waddington and Rawlings brands, as well as Goody Products. More recently, Newell sold its Pure Fishing and Jostens brands for $2.5 billion of after-tax proceeds. It also sold its Rexair and Process Solutions businesses for over $730 million. It may also decide to sell its United States Playing Card Co. and is reportedly seeking bids for the business.

The impact of these divestitures will reduce sales, but Newell can use the proceeds of the asset sales to reduce debt, buy back stock, and invest in new growth areas. This will help keep the company highly profitable, which fuels its dividends to shareholders.

The company has made notable progress in these efforts. In 2018, Newell’s core sales declined 5.2%, while adjusted earnings-per-share declined just 2.5% to $2.68.

In early May (5/3/19) Newell reported first-quarter financial results. Net sales totaled $1.7 billion, a decline of 5.5% from the same quarter last year. Excluding currency impacts, core operating sales declined 2.4% for the period. Excluding impairments and other nonrecurring factors, Newell’s adjusted EPS fell 50% from the same quarter last year. Still, management guides for $1.50 to $1.65 in earnings-per-share for 2019.

Compelling Turnaround Stock

Newell’s dividend payout appears to be secure. The company’s anticipated payout ratio for 2019 is 58%, which indicates a sustainable dividend. The current yield of 5.9% is very attractive for income seekers. In addition, the stock is undervalued. Based on average EPS estimates of approximately $1.60 for 2019, Newell shares trade for a low price-to-earnings ratio of 9. This is well below our fair value estimate, which is a price-to-earnings ratio of 14 for a fair value price of $22 per share.

A price to earnings ratio of 14 is a reasonable valuation multiple for a profitable company with strong brands, particularly if Newell can return to top-line growth in the near future. If Newell’s turnaround proves successful, shareholders could generate strong returns, comprised of EPS growth, expansion of the P/E ratio, and the dividend.

Overall, it is not unreasonable to expect annual returns well above 10% going forward. The dividend yield will comprise nearly a 6% annual return, while Newell could easily grow adjusted EPS in the low-digit range. A higher P/E ratio will make up the remainder of annual returns to shareholders, making Newell one of the best high dividend stocks for 2019.