In the hunt for yield, income investors are sometimes taken into off-road territory. That can be a good thing or a bad thing. Sometimes investors may find a dividend stock paying a crazy yield, something over 10%, and think they’ve found a gem. Too often, however, dividend stocks paying a yield that high means the stock price is very low and it is low for a reason.
Still, there are many excellent dividend stock choices out there that get overlooked because they aren’t big brand-name companies. Some are just quietly tending to their business and generating lots of cash flow, paying shareholders regularly, and even raising their dividends.
With that in mind, here are a few suggestions for dividend stocks paying more than 4.75%.
Dividend Stocks to Buy: Ashford Hospitality Trust (AHT)
Dividend Yield: 7.4%
When it comes to finding good dividend stocks, my first stop is usually hotels. Run properly, a good hotel company will generate a lot of cash flow. Ashford Hospitality Trust, Inc. (NYSE:AHT) is a very well-managed hotel real estate investment trust that I have been in and out of ever since it went public more than a dozen years ago.
What is critical with hotel stocks is how they handle things in bad times. During the financial crisis, its experienced management handled the liquidity situation with aplomb. It did it so well that while most other hotel firms had to suspend both preferred and common dividends, AHT maintained payments on its preferred dividends and even repurchased shares at rock-bottom prices.
Ashford’s portfolio has amazing, broad diversification, and it has the single highest insider level of ownership at 19.1.
Dividend Stocks to Buy: Collectors Universe (CLCT)
Dividend Yield: 5%
Next is a truly oddball play you probably haven’t heard of. In the case of Collector’s Universe, Inc. (NASDAQ:CLCT), has quite a story behind it. It is the go-to name in collectible authentication services and it also set the standard for grading of various collectibles — whether it be for autographs, coins or trading cards.
You’d think this wasn’t a growth business, but it is, albeit a slow and inconsistent one. Yet growth isn’t what interests me about CLCT stock. For me, this is about a company that generates free cash flow and pays out most of it as a dividend.
It had free cash flow of $13.9 million in the TTM and it paid $11.9 million in dividends. It doesn’t always hit the mark in terms of coverage for the dividend, but it has almost $10 million in cash to make up the difference.
Dividend Stocks to Buy: DineEquity Inc (DIN)
Dividend Yield: 7%
DineEquity Inc (NYSE:DIN) sounds about as boring a stock as you could find, and that’s fine with me. Most people wouldn’t look beyond the name. That’s too bad, because if they did, they’d find it is the parent company of the 2,000 Applebee’s and 1,700 IHOP restaurants.
Like CLCT, DIN stock is not tearing the place up in terms of growth. What it does have, however, is exactly what its restaurants offer: consistency. You know what you are going to get when you go to an Applebee’s or an IHOP. Likewise, it leads to consistent revenue and cash flow. Because DIN is a franchise-based model, it has very little in the way of capex. Thus, most cash flow ends up on the bottom line, and the dividend payout ratio is about 60% of FCF.
In FY16, $112.5 million of FCF boiled down to $67.4 million in dividends. The $3.88 dividend translates to a 7.31% yield and that is terrific as far as dividend stocks go.
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 does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at [email protected].