Low interest rates have created a challenge for investors looking for dividend stocks that will generate safe cash flows for their retirement.
Dividend stocks have become increasingly appealing because of their relatively high yields and their ability to grow their payouts over time, which better protects one’s purchasing power compared to fixed interest payments made by bonds.
In the article below, we look at 10 of the best high dividend stocks that offer strong yields (4% and above) and that have regular cash flows insulated from the vagaries of economic cycles.
Most of these stocks have increased their dividends for more than 10 consecutive years, and each one has a high Dividend Safety Score above 60, indicating that its dividend payments are likely very safe.
While stock prices will unpredictably fluctuate, the dividends paid by these safe dividend stocks are expected to remain secure with moderate growth. So, here’s a look at these 10 stocks, as well as their current yields, dividend growth streak and dividend safety score.
Dividend Safety Score: 86
Dividend Yield: 4.5%
Dividend Growth Streak: 24 years
Realty Income Corp (NYSE:O) is a real estate investment trust (REIT) that engages in the asset management of commercial properties in the U.S. Founded in 1997, Realty Income today has more than 240 commercial tenants from over 50 different industries.
Realty Income’s portfolio of properties can be broadly classified into retail (accounting for 78.9% of its December quarter rental revenue), industrial (13.2%), office (5.5%) and agriculture (2.4%) markets. The company’s portfolio consists of more than 4,900 properties across 49 states.
The REIT owns and purchases freestanding, single-tenant properties in key locations which grant it a strong competitive advantage. It also has a high occupancy ratio of more than 98%, which indicates the desirability of its locations and the strength of its portfolio strategy. The company’s conservative capital structure also means that it can easily raise money to buy more properties.
REITs have to pay out 90% of their income as dividends under law, which drives up their dividend yields. Realty Income — the self-proclaimed “Monthly Dividend Company” — has paid out 562 consecutive monthly dividends, and has grown its payout by an annual rate of 5.3% over the past 20 years.
Realty Income is among the safest dividend stocks on the planet, and should continue growing its monthly distribution by low to mid-single digits every year.
Dividend Safety Score: 75
Dividend Yield: 5.21%
Dividend Growth Streak: 17 years
Magellan Midstream Partners, L.P. (NYSE:MMP) is a master limited partnership that provides services related to the transportation, storage and distribution of crude oil and refined petroleum products. The partnership provides network access to nearly half of the nation’s refining capacity and owns the longest refined petroleum products pipeline system in the country.
Magellan’s business segments are refined products (71% of 2016 revenues), crude oil (20%) and marine storage (9%). It has an extensive network of pipelines consisting of 2,200 miles of crude oil, 9,700 miles of refined products pipeline and five marine terminals. In addition, Magellan has a storage capacity of approximately 100 million barrels of petroleum products such as gasoline, diesel fuel and crude oil.
Magellan’s cash flow is regular and safe, owing to its low-risk projects and the predictable nature of its cash flow, which is largely driven by tariffs and throughput volume agreements with conservatively capitalized customers. MMP also has an attractive portfolio of energy infrastructure assets.
Magellan Partners has proven its resilience by not only paying but also increasing its distributions (MLPs pay out distributions, which are like dividends but with some differences including taxation), even in an unfavorable commodity price market. MMP is also one of the growthiest dividend stocks on this list, boosting distributions consistently for 17 years in a row, and doing so at a very attractive 15.8% annual rate over the past five years.
Dividend Safety Score: 85
Dividend Yield: 4.2%
Dividend Growth Streak: 13 years
Telecoms are typically among the most reliable dividend stocks you can find, and Telus Corporation (USA) (NYSE:TU) is no different. Telus was started in 1990 by the government of Alberta, is now the second largest telecom company in Canada. The Canadian telecommunications company provides a wide range of services like voice, entertainment, satellite, IPTV and healthcare.
Telus serves 8.6 million wireless subscribers, 1.7 million internet subscribers and 1 million TV customers. It also has 1.4 million residential network access lines. Wireless service is a fast-growing segment, accounting for about 67% of the company’s EBITDA, while wireline service accounts for the rest 33%.
Telus enjoys pricing benefits from the industry’s oligopolistic structure. The company has a massive subscriber base that provides cash flow for maintaining its costly network infrastructure, which is almost impossible for a new entrant to replicate.
Telecom players also need to pay for acquiring rights to the telecom spectrum which is also very costly and limited in supply. As a result, Telus has a strong competitive moat and will likely be in business paying dividends for many years to come.
Telus has a dividend growth streak of 13 years, growing its dividend by approximately 12% per year over the past decade. And the company is targeting 7%-10% increases over the next few years. Best of all, the telecom also features a very reasonable payout ratio outlook of 65% to 75% over the long-term, meaning this dividend will be stable and secure.
Dividend Safety Score: 83
Dividend Yield: 4.8%
Dividend Growth Streak: 16 years
Southern Co (NYSE:SO) is a regulated utility — a sector full of safe, generous dividend stocks. Southern Co specifically is a premier energy company in the Southeast U.S. that serves approximately 9 million electric and gas customers and wholesale customers, and approximately 90% of its profit is from regulated subsidiaries.
Its four electric utilities subsidiaries — Alabama Power, Georgia Power, Gulf Power (Florida) and Mississippi Power — serve customers in their respective four states, while its natural gas distribution utilities serve customers in seven states of Illinois, Georgia, Virginia, New Jersey, Florida, Tennessee and Maryland. All told, the company is the largest natural gas distribution operator in the U.S.
Southern Company has a low-risk business model with a diverse portfolio of generating assets consisting of natural gas, coal, nuclear, renewables, hydro and others. It’s also focusing on more renewable energy capacity addition.
The utility’s extensive operations in the Southeast region enjoy generally constructive regulatory frameworks, and the costly nature of its hard assets creates additional barriers to entry.
The Southern Company has increased dividends annually for the past 16 years, with growth of 3.7% annually over the past decade. It has a relatively high payout ratio, but Southern’s largely regulated earnings means this is of little concern.
Analysts expect SO to grow earnings at 3.6% per year over the next five years, which should allow it to continue raising dividends at a low-single-digit pace in the future.
Dividend Safety Score: 85
Dividend Yield: 4.2%
Dividend Growth Streak: 12 years
Duke Energy Corp (NYSE:DUK) is one of the largest electric utilities in the U.S. The company serves 7.5 million electric and 1.5 million gas customers through operations that span across the Southeast and Midwest U.S.
Duke Energy’s business segments are Electric Utilities and Infrastructure (94% of the total 2016 revenues – regulated utilities in the Carolinas, Florida and Midwest), Gas Utilities (4% – regulated gas local distribution companies in Ohio, Kentucky and natural gas storage and pipelines) and Infrastructure and Commercial Renewables (2% – non-regulated scale wind and solar generation assets in the U.S.).
DUK has a highly safe business model with reliable cash flows. Regulated utility businesses involve huge capex in the form of construction of power plants, transmission and distribution networks. They are also subject to various regulatory policies, thus making it difficult for new entrants to enter. Moreover, Duke Energy is the only electricity supplier in many of the areas it serves and also operates in highly favorable geographic locations.
Duke Energy is focusing more on its core regulated businesses and is also shifting more towards renewable energy generation. With the acquisition of Piedmont Natural Gas and sale of assets in Latin America in 2016, Duke Energy has completed its transition to a more stable and predictable regulated utility business model exclusively. This further enhances the company’s chances of paying and increasing dividends in the future.
Duke Energy has paid quarterly dividends consistently for nine decades. Moreover, DUK has increased its dividend by 4% annually over the past decade. The company is targeting 4% to 6% EPS growth and a payout ratio between 70% and 75% through 2021. Thus, investors can expect annual dividend growth of at least 3% in the future as well.
Dividend Safety Score: 96
Dividend Yield: 5.15%
Dividend Growth Streak: 33 years
AT&T Inc. (NYSE:T) is the world’s largest communications company by revenue. The company provides mobile and fixed telephone services, broadband, and television services through DirecTV.
AT&T has a broad video, mobility service, and high-speed internet footprint available at more than 60 million locations. AT&T is also the second largest wireless solution provider and the largest pay TV provider in the U.S. with more than 25 million video subscribers.
This company screams “reliability.”
With more than 140 years of experience, AT&T has built a strong brand and a substantial subscriber base. AT&T’s broad portfolio allows it to bundle its services together, raising switching costs for its customers while providing better value compared to many of its rivals.
AT&T continues aggressively expanding with the potential $85 billion acquisition of Time Warner Inc. (NYSE:TWX), its recent deal with DirecTV (which offers data free viewing for AT&T subscribers), and plans to begin rolling out 5G wireless technology this year and beyond. The company’s assets and subscriber base would be extremely costly to replicate by competitors, forming a strong competitive advantage.
AT&T is the only Dividend Aristocrat in the telecom sector, not only paying dividends but also increasing them for 33 consecutive years. It last increased its dividend by 2% in 2017.
The company has grown dividends at a compound annual growth rate of 3.7% over the last decade and expected adjusted EPS to grow in the mid-single-digit range in 2017. Given its payout ratio near 70%, AT&T will likely continue growing its dividend at a low- to mid-single-digit annual rate and use excess free cash flow to improve its balance sheet.
Dividend Safety Score: 63
Dividend Yield: 3.8%
Dividend Growth Streak: 4 years
Crown Castle International Corp. (NYSE:CCI) is a telecommunications play that doesn’t get as much press, but is among the safer dividend stocks on the market.
CCI is a real estate investment trust (REIT) that owns and leases shared wireless infrastructure throughout the U.S. and Puerto Rico, and in fact is the nation’s largest provider of shared wireless infrastructure. The company owns roughly 40,000 towers and 26,500 miles of fiber that support small cell networks.
Wireless carriers, communities, governments and local property owners are the company’s major clients. Approximately 90% of Crown Castle’s total revenue comes from the big four wireless carriers. Crown Castle’s operating segments consist of towers (accounting for 88% of its 2016 site rental revenues) and small cells (12%).
The rental income from towers is very safe and recurring in nature. Long-term leases are characterized by an initial contracted period of five to 15 years, multiple renewal options, limited termination rights and escalations of the rental price each year. Given that telecom has become an essential service in the Internet age, the company is safe from the technology disruption affecting other industries. The company can keep growing its business without much capex by simply adding new tenants to its existing towers, too.
All of these factors not only provide clear cash flow visibility, but also help support the company’s dividend. Crown Castle began paying dividends in 2014 with a 35-cent distribution, and last hiked the dividend by 7.3% in late 2016 to its current 95-cent payout.
Management targets 6%-7% long-term annual growth in dividends per share. Given the company’s business strength and attractive incremental margins, this target looks achievable.
Dividend Safety Score: 83
Dividend Yield: 2.9%
Dividend Growth Streak: 4 years
AbbVie Inc (NYSE:ABBV) is a research-driven biopharmaceutical company that was spun off from Abbott Laboratories (NYSE:ABT) in 2013. AbbVie has 21 research and manufacturing centers in more than 170 countries and its products are used by more than 30 million patients each year.
ABBV focuses on therapeutic areas like immunology, oncology, virology, neurology and general medicine. The company is the current market leader in the rheumatoid arthritis segment.
AbbVie’s product portfolio is quite extensive, consisting of rheumatology, HCV, virology, hormonal, and endocrinology products. However, more than 60% of AbbVie’s revenue comes from sales of its Humira drug, followed by AndroGel, a topical drug. Still, about 20 new products are also expected to be launched by 2020, so those ratios could easily change.
While there is more regulatory-driven price pressure facing branded drugs today, the pharma industry still has numerous barriers to entry. It takes years of R&D, long gestation times and huge sums of money to establish a foothold in this industry. Other strong entry barriers are intellectual property rights and strict regulatory compliance. The company also benefits as drug demand is relatively immune from recessions.
And while many pharmaceutical companies are high-paying dividend stocks, ABBV is among the better names in the space. AbbVie has grown dividends at a compound annual growth rate of 12.5% over the last three years. The company has a relatively safe payout ratio close to 60% and generates plenty of free cash flow.
ABBV has guided to increase revenue to $37 billion by 2020, which is almost 60% higher that the revenue generated last year. The company should thus continue its dividend growth streak, given its new product launches and increasing drug sales and margins.
Dividend Safety Score: 90
Dividend Yield: 3.7%
Dividend Growth Streak: 10 years
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is a leading owner and operator of global infrastructure networks, including everything from railroads and ports to natural gas pipelines and telecom towers.
Brookfield’s key segments are utilities (42% of 2016 funds from operations), transport (45%), energy (19%), communications infrastructure (8%), and corporate and other (-14%). The company has a robust pipeline of new investments that includes a number of large potential corporate carve-outs of telecom and energy businesses.
BIP’s portfolio is quite impressive consisting of diversified, high-quality and long-life assets. It also has a good geographical footprint across North and South America, Asia Pacific and Europe. This reduces both sectoral (utilities, transport, energy and communications) and geographical volatility.
The partnership focuses on stable cash flow generating assets, which operate under regulated frameworks and require minimal capital expenditures. Brookfield Infrastructure should continue growing given the boom in the infrastructure sector globally.
Of our dividend stocks, BIP is among the youngest, hitting the markets in 2008. But the company has successfully paid distributions since then, and has increased them at an 11.9% annual rate over the last five years. Brookfield last increased its distribution by about 10% earlier this year.
The company’s objective is to generate annual distribution growth of 5%-9%, which seems reasonable given the firm’s cash flow growth and its targeted payout ratio of 60%-70% of its funds from operations as distributions.
Dividend Safety Score: 89
Dividend Yield: 3.5%
Dividend Growth Streak: 13 years
Lastly, we have Qualcomm, Inc. (NASDAQ:QCOM), which has been on the losing side of the news cycle over the past few months.
Qualcomm is a semiconductor and telecommunications equipment company with over 175 offices in more than 40 countries. It is the pioneer of the wireless communication industry and developed the CDMA technology, which powers most of the mobile phones today. It owns a huge portfolio of patents related to CDMA and 4G LTE technology and is now working towards development of 5G technology.
Qualcomm manufactures chipsets for smartphones and tablets and also has a substantial market share through its Snapdragon range of processors. The latest smartphones like Samsung S8 and Galaxy use QCOM processors.
It is almost impossible for a rival to create or replicate such technologies, making Qualcomm’s revenues mostly safe. However, Apple Inc. (NASDAQ:AAPL) is among customers claiming that QCOM is anti-competitive, and has pushed back on the prices Qualcomm is able to charge.
Still, Qualcomm is a global leader in this industry, and its technological strength and unparalleled competence cannot be copied easily by rivals. The company’s acquisition of NXP Semiconductors N.V should further strengthen QCOM’s position in semiconductor electronics in automotive, secure identification, and RF power products.
Qualcomm sports a low payout ratio of 51% that suggests it can grow future dividends at a healthy clip. Moreover, QCOM has increased its dividends at an impressive 19.8% annual rate over the past five years.
While Qualcomm is going through an uncertain time with Apple, the company still stands on a healthy foundation, and its dividend is perfectly safe.
As of this writing, Brian Bollinger did not hold a position in any of the aforementioned securities.