As we come to realize that no one gets out of this life alive, investment goals change. If you’re not to run out of money in retirement, you need to get enough income from it so that you meet your expenses without grabbing the principal. Dividend stocks for older investors are different than those for young people.
This means you can’t wait on Home Depot Inc (NYSE:HD) to grow into a fat dividend. You want income now.
There are stocks that can help with that, but you’re going to want to change how you look at them. It’s no longer, will that dividend grow? It’s more, is the company good for that dividend?
Fatter Yield, Higher Risk Dividend Stocks
The best yields among dividend stocks all come with the question: Is they going to keep paying that dividend?
If you’re looking for a safe yield, look to telcos like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T). These companies have been focused on dividends for all their corporate lives.
Verizon, for instance, delivered $2.56 per share of dividends over the last year, a yield of 4.85%. Last year it had $30.1 billion of net income, with 4.13 billion shares outstanding. The company also had $113 billion in debt, costing $3-4 billion to service. But, with almost $7.50 per share of net income, you can say they’re good for it.
AT&T, meanwhile, delivered $29.5 billion of net income over the last year, and yields a fat 6.7%. It needs $2 per share for its 6.13 billion shares outstanding, which costs about $12.5 billion. AT&T also had almost $126 billion in debt at the end of 2017, on which it pays almost $4 billion. But they, too are good for it.
Now look what happens when you stretch for yield. CenturyLink Inc (NYSE:CTL), which owns the former US West, delivered $2.18 billion in dividends last year across a little over 1 billion shares, a yield of 11.68%.
Sound too good to be true? It is. The company’s net income last year was just short of $1.4 billion. CenturyLink also had $37 billion of debt on its balance sheet at the end of last year. Even at today’s lowest rates, that’s got to cost another $1 billion to service in 2018. CenturyLink is on a path that is unsustainable in the long run.
Send Me the Earnings
If you’re hungry for dividend stocks and can take some risk, you’re going to look at Real Estate Investment Trusts (REITs) and Master Limited Partnerships (MLPs).
Both REITs and MLPs are required to pass net income along as dividends, but there are risks.
Brad Thomas, who writes the iREIT Investor newsletter, is a great source on REITs. One he likes is Starwood Property Trust Inc. (NYSE:STWD), which makes loans to real estate owners. Its present yield is 9.2%, and Thomas thinks it could go up.
Early in this decade MLPs, most of which own oilfield pipeline assets, were hot. Supplies of oil were jumping, prices were rising, the goo needed somewhere to go, so the “midstream” companies, which take product from wells to refineries, were the place to be.
Enterprise Products Partners L.P. (NYSE:EPD) is one such MLP that has gotten through the mid-decade oil bust. Its dividends of $1.71 per share represent a yield of 6.45% on your money. They cover that dividend by 20%, most of the money is stable and fee-based, and they still have an investment-grade credit rating.
But MLPs are partnerships. While the profits flow to you in good times, losses are also supposed to head your way. You’re going to get a tax document called a K-1 on each MLP you own. It’s unwise to put MLPs into a retirement portfolio for this reason. Even if you’re retired, you may need an accountant.
The risks with high-yielding dividend investments are different from those where yields are lower. The corporate structure may also be different, to maximize returns. But if you’re looking for your money to make you money now, they may be the way to go.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in T.
