The hunt for yield has been a game forced on investors by the Fed, which has kept interest rates at all-time lows. Whereas it was once relatively easy to find bonds and other fixed-income securities that would offer decent yields, investors have been pushed further out on the risk curve, leading to a boom in high yield stocks.
But many of the high yield stocks that everyone is buying are now priced to the point where they no longer reflect their intrinsic value.
Thus, finding relatively safe high yield stocks can become a bit of a chore. Investors are forced to hunt for high yield stocks that are also value stocks … or at least aren’t insanely overpriced. Remember, high yield stocks that fall will provide an even higher yield, but at the cost of capital losses.
With all of that in mind, let’s look at three high yield stocks that will last you a good, long while.
High Yield Stocks to Buy: Entergy Corporation (ETR)
Utilities are generally a safe bet in any market, and Entergy Corporation (ETR) is one of those high yield stocks that many would be comfortable with.
Utilities are reliable for two reasons. First, they deal in a business that everyone interacts with — energy. We all need energy, so there is constantly demand for it. Second, rates are regulated, so utilities can peg how much money they are likely to make each year, and set a dividend accordingly.
ETR is particularly attractive because it is a diversified power generator, producing electricity through gas, oil, nuclear, coal, wind and hydro power. The company also has a wholesale operation that allows it to sell power to wholesale customers. In addition, ETR specializes in nuclear power, decommissioning some plants while offering services to others and owning interests in still more.
ETR sticks to the south, offering power over only four states and yields 4.58%.
High Yield Stocks to Buy: Icahn Enterprises LP (IEP)
Believe it or not, Carl Icahn is owner of one of the biggest high yield stocks: Icahn Enterprises LP (IEP) gives investors a chance to invest alongside Uncle Carl. His public vehicle is like a mini-mutual fund, which holds a number of different public companies.
It’s an interesting time for IEP, which has gotten hammered and is about 33% off its 52-week high, but also about 50% off its 52-week low. Icahn had a rough fourth quarter because he has a lot of holdings in energy and in copper, which have gotten crushed by the market.
Yet the thing about Icahn is that he’s the world’s most successful investor over the long term, and if just a handful of his vulture plays work out, his investments return multiples over time.
It’s not a bad time to get in on IEP stock, which yields 9%.
High Yield Stocks to Buy: AT&T Inc. (T)
I can’t say I’m thrilled about the growth prospects of AT&T Inc. (T), even after the buyout of DirecTV. Telecom is a lousy business. It’s a commodity at this point, with each company offering all kinds of retention incentives just to keep people from leaving their service. DirecTV’s growth is also slowing after years of doing very well.
However, and this is a very big “however,” T stock generates tons and tons of free cash flow — more than $15 billion in 2015. The company also only pays out about 66% of that cash flow as a dividend, which presently yields 5%. This is the beauty of a legacy telecom, and that’s not likely to change.
So even though T has been in a trading range for years, investors have enjoyed consistent dividends the entire time. Even if the stock goes nowhere, this is a case where you can sit back and feel reasonably comfortable that the dividend is sustainable.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he did not hold a position in any of the aforementioned securities. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached atTheLibertyPortfolio@gmail.com.