The market is filled with stocks. Ever since bond yields went to zero as the Federal Reserve tried to rescue the economy from the mortgage crisis, it has forced people to go further out on the risk curve in order to get the income they had been used to getting from bonds.
Risk is the foremost concern of my stock advisory newsletter, The Liberty Portfolio. Most investors unknowingly take on far, far too much risk. Things are all rosy now with the market 30% overvalued, but trust me, when the correction comes, investors will suddenly learn about risk the hard way.
So as normally “conservative” investors take on higher levels of risk by investing in securities mistaken perceived as “safe,” or “blue chip,” just to squeeze out those 4% yields, they may be missing some overlooked high-dividend stocks that carry less risk.
Overlooked High-Dividend Stocks: Icahn Enterprises (IEP)
Dividend Yield: 10.3%
Icahn Enterprises LP (NYSE:IEP) is not known as a dividend stock. I think it is mostly known because it is the publicly traded vehicle that allows investors to invest alongside Carl Icahn.
The stock has shown a good deal of volatility over the past few years, so normally I would veer away from it. However, the stock is now bouncing near multiyear lows. It closed at a bit under $55 last week, and that’s only eight bucks higher than its multiyear low. Yet it is still more than 50% below its multiyear high.
Thus, there is a floor not too far under the current price of around $58, which offsets the risk offered by the volatility. So for starters, you are coming in at a good price.
However, there’s something better. The current dividend yield on IEP is 10.3%. That’s right. Carl Icahn is paying you $6 per share per year to own his stock. So holding it for a year would mean getting paid $6 per share, and that would erase much of any potential $8 downside. Low-risk stock, high yield.
Overlooked High-Dividend Stocks: Senior Housing Properties Trust (SNH)
Dividend Yield: 8.3%
Senior Housing Properties Trust (NASDAQ:SNH) is in a sector that has huge long-term secular tailwinds. The American population is aging, and baby-boomers are moving into senior housing facilities. This trend is going to continue for some time.
Not all senior housing plays are created equal. However, SNH is a grand choice because it is diversified beyond just senior housing, which accounts for 52% of its operating base. It operates other facilities that provides services to the entire arena of senior care. Yes, it operates and owns a number of continuing care and assisted care retirement facilities. However, it has 42% of properties in broad holdings in medical office spaces and skilled nursing facilities. It also is a landlord, offering space to biotech companies and to clinics
It carries a portfolio value exceeding $8.5 billion and has over 430 separate properties, operating in 42 states. Less than 7% of the portfolio carries capital leases or mortgages.
It yields 8.3%.
Overlooked High-Dividend Stocks: Starwood Property Trust (STWD)
Dividend Yield: 8.9%
Starwood Property Trust, Inc. (NASDAQ:STWD) is a real estate investment trust (REIT) that I initially didn’t understand, because it involved the word “mortgage.” For the longest time after the mortgage crisis and subsequent cratering of the stock market, I avoided mortgage anything, including mortgage REITs.
That was a mistake. Once I actually investigated what mortgage REITs were, I realized that properly managed commercial mortgage REITs could be quite lucrative.
STWD is just such a play, and I like it even more because it sticks to shorter-term securities. It is a mortgage lender, but keeps those loans to under five years in length, and diversifies across both mezzanine and first mortgages.
Amazingly, it has had zero realized loan losses, indicating that management is super-conservative when it comes to who it lends money to.
STWD stock is also attractive because it doesn’t shy away from more distressed plays. Those can also be lucrative if they are examined carefully. STWD yields a fabulous 8.9%.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, he has a position in STWD. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at [email protected].