Everyone has been chasing yield ever since the Federal Reserve lowered interest rates to near zero, and even since rates started creeping back up. However, one of the most dangerous things an investor can do is to seek out high-yield dividend stocks without checking on the financial health of the underlying company.
And there’s been a lot of that, as evidenced by the occasional Wall Street dog-pile into obviously flawed dividend stocks soon before they announce a cut to the payout.
That’s what happens. Yields can rise in one of two ways: An increase to the dividend, or a cut to the share price. Thus, you often get high-single-digit and even double-digit yields not because the company is shelling out a ton of cash it can afford, but simply because the stock has been beaten to the ground, reflecting a poor financial situation — one that typically will result in a dividend cut, or worse, a dividend suspension.
The following seven high-yield dividend stocks boast payouts mostly between 7% and 10%, and feature stable (and at times, even growth-oriented) businesses that help fund secure quarterly income checks you can depend on.
Safe High-Yield Dividend Stocks to Buy: Omega Healthcare (OHI)
Dividend Yield: 7.7%
Omega Healthcare Investors Inc (NYSE:OHI) is squarely on my radar, and I recently did a write-up of the stock, so it’s fresh on my mind.
I hate to sound like I’m pounding the table on anything, but this article is about safe high-yield dividend stocks, and OHI is the real deal.
Omega Healthcare focuses on a geographically diverse array of assisted living facilities and skilled nursing facilities, and it has a leg up as supply is limited while demand is only increasing. That’s because most states have complicated laws that require health care providers to have a “Certificate of Need” to show that their presence in needed. This slows down new supply from coming to the market, creating an imbalance.
The result is great cash flow and a secure dividend presently at 7.7%. Better still, that payout has grown every quarter since 2012.
Safe High-Yield Dividend Stocks to Buy: New Senior Investment Group (SNR)
Dividend Yield: 10.1%
New Senior Investment Group Inc (NYSE:SNR) is another senior housing REIT, which plays to a story that all investors should be focused on for the next decade or more: the aging of the American population.
SNR boasts more than 150 properties across 37 states, split among 105 independent living properties, 40 assisted living/memory care properties and five continuing care retirement communities. While the company has only been on the market since coming public in 2015, it’s still is a particularly safe play because senior housing payments are all made privately, with no reliance on the government. Fraud and red tape can hamper government payment contracts.
The company’s 26-cent quarterly dividend is more than covered by funds from operations, and translates into a double-digit yield. Moreover, the stock itself is trading around $10.30 and is forming a long base from which prices may leap going forward.
Safe High-Yield Dividend Stocks to Buy: Independence Realty Trust (IRT)
Dividend Yield: 7.1%
Independence Realty Trust Inc. (NYSE:IRT) is another REIT, but this one works in an area that I really like in our current economy.
You might have noticed that rent is insanely high in many markets across the country. Independence Realty Trust is a REIT that operates, and owns, and will lend money against both “A”- and “B”-level apartment buildings, so it’s in prime position to take advantage of skyrocketing rents.
While IRT does carry more debt than I would prefer, with maturities due sooner than I’d like, there’s no danger in it — I see no reason why these deals should not be refinanced. By the way, like all good REITs that use leverage, IRT uses rate hedges, which means that a good portion of that debt is not going to be more expensive than 3%.
IRT pays a 6-cent monthly dividend, and the company is paying out less than its trailing-12-month FFO to finance it. Meanwhile, the stock is enjoying a big move in 2017, up 14% and closing in on all-time highs.
Safe High-Yield Dividend Stocks to Buy: Ashford Hospitality Trust (AHT)
Dividend Yield: 7.8%
Ashford Hospitality Trust Inc. (NYSE:AHT) is a hotel REIT I have written about many times. The market has never given AHT stock the love it deserves, so it remains undervalued at $6.35 per share. I think this is easily a $10 stock.
Ashford owns about 120 full-service, upper upscale hotels all across the country, across multiple brands including Ritz-Carlton, W and Embassy Suites. This is a perfect play on an increasingly wealth upper class, whose disposable income is going nowhere but up.
AHT has paid a consistent dividend that admittedly was suspended for a time during the financial crisis, but reinstated on the early side and paid ever since.
It has paid a consistent dividend, which was suspended for a time during the financial crisis, yet reinstated on the early side, and has been paying ever since. And it’s not going away anytime soon, what with roughly 300% dividend coverage from FFO over the trailing 12 months.
This is one of the best hotel-focused dividend stocks in the market, with room for capital gains as well.
Safe High-Yield Dividend Stocks to Buy: City Office REIT (CIO)
Dividend Yield: 7.5%
City Office REIT Inc (NYSE:CIO) is a small-cap REIT with a lot of room to grow and exceptional expertise in a niche market. Niche markets are attractive to me as an investor, because if a company knows how to navigate it, it can create a very profitable and sustainable business.
CIO invests in urban office properties in well-to-do areas, where job growth has been robust and sustained. Over half of these properties are owned by government entities. While that may be bad when it comes to healthcare payments, it’s great when it comes to rent.
CIO yields a substantial 7.5% on a 23.5-cent quarterly payout that’s covered by FFO with a little room to spare.
Safe High-Yield Dividend Stocks to Buy: Ares Capital (ARCC)
Dividend Yield: 9.2%
Ares Capital Corporation (NASDAQ:ARCC) is one of the best business development companies in the country, and as a BDC, it is required to pay 90% of its net income as a dividend.
ARCC is consistent and reliable, and it makes terrific deals. For instance, it is presently re-organizing and re-structuring 99 Cents Stores to be spun out as an initial public offering.
Moody’s just boosted its outlook on Ares Capital from negative to positive. It borrows money at about 4% and earns an average yield of 9.4% of its investments, but almost 80% of its portfolio is floating-rate.
ARCC’s yield is coming in at about 9.3%, and it has delivered payments with such consistency that I consider it to be not just one of the best BDCs you can own, but one of the best high-yield dividend stocks on the market.
Safe High-Yield Dividend Stocks to Buy: Icahn Enterprises (IEP)
Distribution Yield: 11.3%
Icahn Enterprises LP (NASDAQ:IEP) is one of the top dividend stocks to buy right now, because it allows you to invest alongside Carl Icahn, one of history’s most successful investors.
But understand that you’re not getting every pick Carl Icahn makes. Instead, IEP is more like a mutual fund of distressed assets. The stock is volatile, and has ranged from $40 to $120 and back into the high-$40 range over the past five years.
However, with IEP now at $53, its downside seems limited. For one, great minds like Icahn’s don’t stay in slumps forever. Meanwhile, Icahn Enterprise’s declines over the past few years — but a stable distribution of $1.50 quarterly — have driven the yield to above 11%. Even if we wanted to discuss a bad-case scenario where IEP cuts the distribution by, say, a third, you’re looking at $4 annually, which still is well above 7%.
And I don’t see that in the cards.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. The stocks presented here are similar to the stocks he recommends as part of a long-term diversified portfolio, but not part of The Liberty Portfolio’s holistic strategy. However, he personally owns AHT, CIO and SNR. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.