Editor’s note: This story was previously published in November 2019. It has since been updated and republished.
It’s not as easy as it looks to pick high-yield dividend stocks because they’re often yielding more than 5% for a reason. Something about the company or industry has broken down, pushing the stock price lower and the yield higher.
However, that doesn’t mean good buys aren’t out there. It just means you have to be a little more selective about the ones you do choose to buy.
To keep things interesting, I’ll do my best to include one stock from seven different sectors.
High-Yield Stocks to Buy: Rio Tinto (RIO)
In 2018, Rio Tinto (NYSE:RIO) paid total dividends of $3.08 a share, 30% higher than the $2.37 it paid out a year earlier. In April, it paid out $1.80 in regular dividends and $2.43 in special dividends. In September, it paid $1.51 in regular dividends and 61 cents in special dividends. The special dividends were the result of higher annual profits in 2019.
Rio Tinto CEO Jean-Sebastian Jacques told a roomful of miners in October that the industry needed to step up its environmental, social and governance (ESG) game if it wanted to remain profitable in a world where climates are changing at a drastic pace.
“Lots of people are talking about it, but I’m not sure there is action,” Jacques told the London audience.
That’s courageous talk from the leader of one of the companies that will shape how the industry operates 20-30 years from now.
One possibility Rio Tinto’s CEO mentioned at the London conference was the creation of an app that would allow its customers to see how much carbon dioxide emitted from the products they buy.
The mining industry isn’t known for full disclosure. Jacques’ approach suggests his company will play a big part in that changing.
In the meantime, enjoy the attractive dividend yield.
Tapestry (NYSE:TPR) stock is down 24% over the last year, excluding dividends.
The company was once known as Coach. Then it acquired Kate Spade in July 2017 for $2.4 billion, changed its name to Tapestry to reflect the holding company nature of its business, and all hell has broken loose.
Since Tapestry closed the deal, TPR stock has lost more than 40% of its value. Talk about value destruction.
However, as Tapestry CEO Jide Zeitlin commented in its Q1 earnings conference call on Nov. 5, Tapestry bought back $300 million of its stock in the first quarter. Combined with the annual dividend of $1.35 a share, it plans to return $700 million to its shareholders in the coming fiscal year.
Tapestry is currently yielding 4.9%,
While its first-quarter results weren’t anything to write home about — a 1% decline in sales excluding currency and a 10.4% decline in non-GAAP operating income — its legacy Coach business continues to provide the profits necessary to allow Zeitlin to do what’s needed to revive the Kate Spade brand, which, to date, has been an abject failure.
Financially sound, Tapestry remains a strong value play for those with patience, not to mention the stomach, to ride out the turnaround.
Gaming and Leisure Properties (GLPI)
Gaming and Leisure Properties (NASDAQ:GLPI) is a real estate investment trust (REIT) based in Wyomissing, Pennsylvania. It owns 46 properties in 16 states that encompass 23.5 million square feet and 12,520 hotel rooms.
As for the dividend, it currently pays $2.80 per share annually, yielding 6.4%. It pays out approximately 80% of its adjusted funds from operations (AFFO), leaving it with plenty of financial flexibility and, more importantly, the cash flow necessary to keep growing the dividend per share at 5% or more per year.
It reported its Q3 2019 earnings on Oct. 31. Its top-line revenue grew 13.2% to $287.6 million, while its AFFO rose a healthy 13.6% during the quarter. For all of 2019, it expects $1.15 billion in revenue (9.2% growth) and $741.5 million in AFFO (8.5%).
GLPI has its real estate assets invested across several different casino operators. No single property generates more than 5.3% of the 2018 pro forma gross gaming revenues. Its top three tenants have a combined enterprise value of $26.3 billion.
With a conservative balance sheet, GLPI’s 6.4% yield is worth biting into for income investors.
If you happened to buy AbbVie (NYSE:ABBV) in mid-August, you’re looking like a regular genius right about now. Up 42% from its 52-week low of $62.66, ABBV stock is still yielding an attractive 5.27%.
How did AbbVie drop so far after starting 2019 around $90?
The company’s $63 billion acquisition of Allergan (NYSE:AGN), the manufacturer of Botox, adds a considerable amount of debt to its balance sheet. In addition, Allergan doesn’t bring to the table any blockbuster drugs like AbbVie’s Humira, which itself seems to be losing some of its growth in Europe, but is still doing fine in the U.S.
The big reason AbbVie management bit the bullet on Allergan was to give itself time to find replacement drugs for Humira. In recent years it had leaned far too heavily on the arthritis drug. By diversifying its portfolio, AbbVie won’t be nearly as reliant on Humira in the future.
That’s great news for investors.
Outfront Media (OUT)
Over the past five years, Outfront Media’s (NYSE:OUT) stock has been in a $10 range between $20 and $30. Currently yielding 5.2%, its stock is near its 52-week high of $28.42.
I’ve been a fan of the REIT for several years. I love the simplicity of its business. It secures prime real estate through long-term leases and then rents out its billboards and bus shelters to advertisers who sell their products to the masses.
To change with the times, you’ve probably noticed that bus shelters and billboards are often digitized these days, which makes the cost of maintaining and changing the ads even less labor-intensive, increasing its margins.
I didn’t recommend Outfront as one of my high-yielding dividend stocks in May, but now that there are fewer good deals available, I’m righting a wrong.
However, while I like the consistency of its business, both in terms of revenue growth and earnings growth, it’s important to remember that this is a business that tends to sag a little when the economy slows as companies cut back on advertising.
That said, its latest earnings report suggests that the national and local advertising markets in the U.S. are doing just fine.
Buy some stock, enjoy the dividend, and keep some cash in reserve for when it corrects below $20.
Owl Rock Capital (ORCC)
Owl Rock Capital Corporation (NYSE:ORCC) is a business development company (BDC) that went public in July at $15.30 a share. Like all BDCs that qualify as a regulated investment company (RIC), it must payout at least 90% of its investment company taxable income and 90% of its tax-exempt income.
Owl Rock was established in October 2015 as a specialty lender to middle-market businesses in the U.S. The middle-market is defined as businesses with EBITDA between $10 million and $250 million and revenue between $50 million and $2.5 billion at the time of investment.
However, as of March 31, 2019, Owl Rock’s 81 portfolio companies had average annual revenues of $455 million with $80 million EBITDA and an average investment of $84.3 million yielding 9.4%, which explains how it’s able to pay out a 7.1% distribution to its shareholders.
It will pay a special dividend of 8 cents on the last day of each quarter in fiscal 2020, which increases the current yield on a forward basis to 7.25%.
It’s a company to watch.
Ready Capital (RC)
Ready Capital (NYSE:RC) is a New York City-based commercial mortgage REIT that specializes in lending to small and medium-sized businesses. It’s the only nationwide specialty finance company focused on the SBC market.
SBC loans are those where the appraised value is less than $5 million and 50,000 square feet or less. Small balance loans account for approximately 15% of the $4.4 trillion in commercial mortgage debt outstanding.
It reported its third-quarter results on Nov. 6. Although they didn’t live up to analyst expectations — earnings missed by a penny at 40 cents while revenues were $20.33 million, 2.3% shy of the consensus — it’s still an attractive high-yield dividend stock generating a robust 9.9% yield.
On Oct. 31, Ready announced that it acquired Knight Capital LLC, a technology-driven provider of working capital to small- and medium-sized businesses in all 50 states. The deal gives Ready access to smaller companies without having to build it to scale.
Of the seven high-yield dividend stocks listed in this article, Ready Capital would be considered the riskiest of the bunch.
That said, Ready Capital has originated more than $3.5 billion in SBC loans since the REIT’s inception in 2012. Furthermore, its external asset manager, Waterfall Asset Management, has more than 75 investment professionals with experience in small-balance commercial loans.
At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.