by Jeff Reeves | April 18, 2014 6:00 am
High-yield dividend stocks are in focus now that yields on the 10-year Treasury bond have rolled back. Income investors once again don’t have a lot of good places to turn, and “bond-like stocks” with high dividends are in favor.
But high-yield dividend stocks are not all created equal. If you’re an investor seeking income, you’re also frequently seeking stability, and stocks that boast massive dividend yields can also pose a big risk to your portfolio.
As the old joke goes, the easiest way for a dividend stocks to double their yield isn’t to pay out more … it’s to have their share price cut in half. So where can investors look if they want high-yield dividend stocks but don’t want high-risk investments that could see shares crash or see distributions slashed?
Here are five solid dividend stocks, all with yields north of 5% but also with a good measure of stability:
Sector: Oil and Gas
Dividend Yield: 7.7%
Market Cap: $4 billion
AmeriGas Partners (APU) is an MLP that distributes propane across the U.S, serving about 2 million residential, commercial, industrial and agricultural customers. It’s also one of the better dividend stocks out there at the moment.
It’s not an incredibly sexy industry, and there isn’t much of a chance that APU stock is going to double anytime soon on some massive demand spike for propane … but for income investors looking for reliable cash in high dividend stocks, that’s actually a big plus.
The company has seen stable growth with eight consecutive quarters of modest year-over-year revenue increases, driven in part by the 2012 acquisition of Heritage Propane. Furthermore, distributions have increased steadily in the last few years from 67 cents per share quarterly in 2009 to 84 cents per share currently — a 25% jump in about five years.
Shares of APU stock have admittedly been sluggish lately, with a meager 3% return on share price alone in the last 12 months, compared with 17% gains for the broader S&P 500. However, investors looking for stable dividend stocks should be very comfortable in this low-volatility stock that boasts a beta reading of just 0.37 currently.
Dividend Yield: 5%
Market Cap: $76 billion
Altria Group (MO) is a tobacco giant that is the parent of Philip Morris (PM) cigarette brands, John Middleton cigars and St. Michelle Wine Estates among other subsidiaries. While these products don’t exactly sound like the typical consumer staples like bread and milk, they do provide a remarkably consistent stream of revenue for Altria — and stable share price and dividend payments as a result.
With a beta of about 0.49, Altria is one of those dividend stocks that has a lot less “wiggle” than the broader market. And in addition to its bulletproof dividend, it has more than $3.1 billion in cash on the books and a debt-to-asset ratio of just 33%. All that adds up to a lot of liquidity and stability if things get rocky — without risking a dividend cut.
Clearly, tobacco is not a growth industry, and like APU it’s unlikely there will be a spike in share prices for this tobacco giant anytime soon. And it’s also worth noting that shares have lagged modestly, with Altria stock up about 7% in the last 12 months, compared with 17% gains for the broader S&P 500 index.
But with a 5% dividend and a history of payments since 1928, there are fewer high-yield dividend stocks out there as attractive as MO.
Sector: Real Estate Investment Trusts
Dividend Yield: 6.3%
Market Cap: $2.2 billion
Longtime readers will know that I regularly tout the buy-and-hold potential of medically focused REIT investments for both reliable income and organic growth thanks to the aging Baby Boomer population. As demographics create more older Americans over the coming years and an increased demand for healthcare services for those folks, medical office centers and hospitals and senior living facilities will be a great place to stash your cash.
Among the best medically focused REITs right now, I like Medical Properties Trust (MPW). Sure, the company has sold off about 12% in the last 12 months. But MPW is actually just sitting in the dividend stocks bargain bin.
Why? Well, revenue has doubled from fiscal 2010 to fiscal 2013 thanks to 11 acquisitions in recent years — including properties in Germany to add diversification to its holdings beyond a big U.S. presence. Profit growth has slowed lately, but the attractiveness of “bond-like stocks” will send buyers to MPW and the long-term demographic pressures should mean a strong play for years to come in this medical REIT.
Sector: Auto parts
Dividend Yield: 5.3%
Market Cap: $370 million
Never heard of small-cap Douglas Dynamics (PLOW)? Well, the ticker says it all; Douglas produces plows, salt and sand spreaders and other “snow control equipment” for use on trucks of all shapes and sizes. It’s also one of the most stable dividend stocks you can buy.
It was a bumper year for Douglas, what with the polar vortex, which has created a nice tailwind both for shares and for dividend payments. Since February lows, PLOW stock is up about 15% to trounce the 7% gain for the S&P 500 in the same period.
Of course, the “polar vortex” that fueled big demand for salt and plows isn’t a sure thing every quarter. However, it’s safe to say that it’s going to snow every winter for the foreseeable future and Douglas has a steady stream of business from governments and commercial plowing services as a result of its strong market position.
If you want stability, banking on cold and ice every winter seems like a good strategy. And even if shares don’t continue the recent momentum higher, the hefty 5.3% dividend yield is a very nice alternative to “high yield” savings accounts that offer less than 1% annual interest to investors.
Sector: Financial services
Dividend Yield: 5.7% (based on last four payouts)
Market Cap: $11.7 billion
It’s probably no surprise that the biggest shareholder in Icahn Enterprises (IEP) is Carl Icahn, the famous activist investor who has grabbed a lot of headlines lately.
But unfortunately, the mojo of Mr. Icahn seems to have lost steam in recent weeks. His very public support of Herbalife (HLF) has soured now that there’s a federal investigation, his urging of Apple (AAPL) to institute a big stock buyback didn’t lead to anything, and Icahn most recently gave up on eBay (EBAY) and his push to spin off the PayPal mobile payments division.
Still, while IEP stock is down 21% or so since Jan. 1, don’t count this stock out. Carl Icahn has a long history of running a successful financial firm — and most importantly, delivering a hefty portion of his profits back to shareholders.
If you believe that the stock market will get choppy, it may help to have a shrewd money manager on your side like Mr. Icahn. And dividend stocks aren’t a bad idea, either. If you want income but don’t want to settle for the meager yield of Treasuries, you could do much worse than the hefty 5.7% yield in IEP stock right now.
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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
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