VSContrary to what many income investors think, the best dividend-paying stocks aren’t necessarily the ones with high yields. High yield dividend stocks have gained particular attention in today’s low interest rate environment, but many of them can be value traps in disguise.
There is a method for making real money with high yielding stocks without getting trapped: If you choose dividend yields backed by sustainable and steady, or even growing, dividends, you should be in good hands. Here are five of those dividend-paying stocks yielding between 4.6% and 9.5% that are solid buys today.
A 5.4% dividend aristocrat in the making
WP Carey (NYSE: WPC) is not only one of the largest net leasehold real estate investment trusts, but it is also a well run business. The proof is in its dividends: Even in an unusually difficult year like 2020, when the COVID-19 pandemic forced industrial establishments, warehouses, offices and retail stores to close for months, WP Carey increased its dividend each quarter. The streak is alive and well, with the company having increased its dividend twice so far in 2021, marking its 23rd consecutive year of dividend increases.
At this rate, WP Carey is expected to become a dividend aristocrat by early 2023. Here are some of the reasons the company can pull off the feat:
- A strong portfolio of 1,266 properties covering 150 million square feet.
- Sector and geographic diversification: 36% of assets based in Europe.
- Ninety-nine percent of leases with built-in contractual rent increases.
- Weighted average lease term of 10.8 years.
- Ninety-eight percent portfolio occupancy at the end of the second quarter.
While management plans to invest between $ 1.5 billion and $ 2 billion this year and is already raising its cash flow forecast, this 5.4% share looks really promising.
A stock with a return of 5% to play a trend induced by the pandemic
Another high yielding REIT on my radar today is Physicians’ real estate trust (NYSE: DOC), one of many healthcare REITs that stand to benefit from an aging population. Unlike REITs focused on properties like senior housing which saw their occupancy rates drop during the pandemic, REITs from medical offices like Physicians Realty are doing strong business. Its rental income and operating funds, for example, increased by 2% and 3% respectively in the first half of 2021, and the company acquired three properties during that period.
Image source: Getty Images.
Physicians Realty acquires properties from on and off campus medical offices and leases them to health service providers in all specialties, including primary care, outpatient surgical care, cardiology, radiology and oncology. As of June 30, Physicians Realty had leased 96% of its 263 healthcare facilities in 31 states, with an average remaining life of 6.6 years.
The best part is the triple net leases from Physicians Realty which means that all operating expenses related to the property are borne by the tenant. It also means stable and predictable cash flow, which explains Physicians Realty’s 32 consecutive quarterly dividends so far. As the pandemic fuels the shift in clinical services from inpatient hospitals to outpatient medical facilities, Physicians Realty is a must-have stock to own.
8.1% share for the boom in the oil market
With soaring crude oil prices and energy companies paying large dividends, some of the best dividend-paying stocks today can be found in the energy sector. Among them, Enterprise Product Partners (NYSE: EPD), with its 8.1% return, is one of the leading high-yielding oil and gas stocks to own.
Be certain, Enbridge (NYSE: ENB) is an equally good competitor because it is also an intermediary game and earns 6.9%, but Enterprise Products Partners is more diverse and can pay bigger dividends thanks to its main limited partnership structure. Enterprise Products Partners also has a stronger balance sheet, with its average cost of debt dropping significantly over the past decade. In fact, the company has funded 100% of its capital investments from operating cash flow over the past 12 months.
Enterprise Products Partners has increased its dividends every year for 22 consecutive years, and with its broad exposure to the cleaner fossil fuel, natural gas, the stock is well positioned to join the clean energy trend and pay reliable dividends for coming years.
A Prime Evergreen Dividend Stock Yielding 4.6%
Dow Inc. (NYSE: DOW) the stock’s yield is just under 5%, but it’s a rock solid dividend stock. Demand for Dow’s products is skyrocketing despite the company’s steadily rising prices over the past few months, reflecting Dow’s market power. Still, the stock has lost nearly 14% in value since June, bringing its return to a solid 4.6%. In July, Dow announced its best quarter ever. Here are some jaw-dropping numbers:
- Sales: Up 66% year over year.
- Earnings: $ 2.51 per share versus a loss of $ 0.31 in the second quarter of 2020.
- Debt: Down $ 1.1 billion. No significant debt maturing before the end of 2025.
- Free cash flow: $ 1.7 billion.
This exemplary set of numbers and Dow’s financial strength are an incredible combination to have in a company that is already the world leader in important chemicals like polyurethanes. The momentum in earnings and cash flow is set to hold steady as activity in key end markets like manufacturing, construction, automotive and personal care picks up. Dow is a cash machine and hasn’t missed a single dividend payment since 1912 – it’s been 109+ years. You won’t regret owning this top notch stock.
A yield of 9.5%, with a big dividend coming in September
Rio Tinto (NYSE: RIO) is the most offbeat stock on my list today as it is a purely cyclical commodity stock with fluctuating dividends, but the company has shown remarkable commitment to its shareholders in recent years . And with the stock falling nearly 21% in the past three months, you can earn a staggering 9.5% return today.
With soaring prices for base metals like iron ore, aluminum and copper, Rio Tinto’s sales and profits peaked in the first half of 2021. Of the $ 12.2 billion it earned and the $ 10.2 billion in free cash flow it generated during the period, Rio Tinto pays $ 9.1 billion in dividends on its own, in the form of an ordinary dividend of $ 3.76 per share and a special dividend of $ 1.85 per share, both due in September.
Of course, these are exceptional times and you shouldn’t expect such big dividend checks all the time, but here’s the problem: Dividends rank second on Rio’s capital allocation priority list. Tinto after maintaining capital expenditure, and it consistently returns 40% to 60% of profits as dividends in any given year. Rio Tinto is also embarking on lithium mining, and with earnings and cash flow expected to remain strong for the near future, 2021 is set to be a record year in terms of shareholder return.
Earn smart money
While stocks like Rio Tinto temporarily offer such a high return, it is a consistently dividend paying company like the other four stocks. This regularity of dividends counts in the long term. And if you supplement your portfolio with high dividend growth stocks alongside high yielding stocks, you will be making money in the smartest way.
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Neha Chamaria does not have a position in any of the stocks mentioned. The Motley Fool owns shares and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners and Physicians Realty Trust. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.