High-dividend stocks are a popular investment because this low-interest-rate environment provides few sources of income right now.
But investors need to remember that not all high-dividend stocks are created equal. Many companies that offer big yields can’t sustain those payouts, and the high dividends dwindle to nothing as earnings dry up. As for other high-dividend stocks, they may deliver a good 5% or 7% in income… but that’s not enough to offset deep share price declines.
So when investors look for the best high-dividend stocks, they should seek out companies that can sustain their payouts, that are seeing their share price rise and have a decent future beyond simply the next quarterly distribution.
Five such high-dividend stocks I like right now include Calumet Specialty Products Partners (CLMT), Omega Healthcare Investors (OHI), CenturyLink (CTL), Alliance Bernstein (AB) and MFA Financial (MFA).
Here’s a closer look at each.
High-Dividend Stocks – Calumet Specialty Products Partners, LP (CLMT)
Distribution Yield: 8.8%
Payout Ratio: 121% of FY2015 forecasts
YTD Total Return: 27%
Calumet Specialty Products Partners, LP (CLMT) is a fuel and chemicals company that is structured as a master limited partnership with a mandate for big distributions (a dividend-esque payment made by MLPs).
Admittedly, the 121% payout ratio should give investors a bit of pause, but the outperformance of this high-dividend stock this year coupled with more upside potential makes CLMT stock worth a look. If the recovery continues to boost demand for Calumet products and energy prices remain firm, this company can easily cover its dividend — which, by the way, is an amazing 8.8% at current pricing.
High-Dividend Stocks – Omega Healthcare Investors (OHI)
Dividend Yield: 5.5%
Payout Ratio: 71% of FY2015 forecasts
YTD Return: 28%
Omega Healthcare Investors (OHI) is a real estate investment trust that owns healthcare facilities including assisted living centers, rehab centers and acute care properties.
As I have said many times, the demographic tailwind of aging baby boomers who need more care is a great low-risk trend — and OHI stock is a high-dividend way to ride this phenomenon.
With a sustainable dividend and a juicy yield, this REIT stands above many of its peers. The fact that OHI has increased payouts each quarter since mid-2012 is also a big vote of confidence.
High-Dividend Stocks – CenturyLink (CTL)
Dividend Yield: 5.4%
Payout Ratio: 87% of FY2015 forecasts
YTD Return: 27%
CenturyLink (CTL) is a an old-school communications stock that is reliant on TV and Internet services. It’s hardly a growth business, but after a rough go of things in 2013, CTL stock has bounced back strongly with big outperformance since February after decent earnings changed some investors’ minds on the stock.
CenturyLink cut its payout by 25% back in February of last year, but its current 54-cent quarterly dividend is sustainable, and still yields a healthy 5.5% yield … so you could do worse than this sleepy telecom stock.
High-Dividend Stocks – AllianceBernstein Holding LP (AB)
Distribution Yield: 7%
Payout Ratio: 93% of FY2015 forecasts
YTD Return: 26%
Investment management firm AllianceBernstein (AB) has bounced back nicely since its 2012 lows thanks to a resurgent stock market in the last two years and the return of investor confidence.
Although its dividends are volatile, since the company is structured as a partnership, its most recent dividends annualize to a hefty 7% payout that is still under 2015 earnings forecasts.
High-Dividend Stocks – MFA Financial (MFA)
Distribution Yield: 9.8%
Payout Ratio: 101% of FY2015 forecasts
YTD Return: 16%
One of the many mortgage REITs, or mREITs, out there that deals with mortgage paper, MFA Financial (MFA) yields a tremendous dividend. But unlike some peers, MFA is actually right on par with earnings when it comes to distributions — even if there’s not much wiggle room should profits fall short.
Some folks are afraid of interest-rate risk and a slowdown in housing that could gut mREITs. However, Sterne Agee just upgraded MFA with big upside both for share price and dividends in the near future.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.