3 High-Yield Stocks for a Lifetime of Safe Income


  • The recent dividend debacle by Walgreens Boots Alliance (WBA) shows investors need more than a long history of payments.
  • AGNC Investment (AGNC): The mREIT carries little risk of default and should benefit from declines in current interest rates.
  • International Business Machines (IBM): The old-line tech giant still throws off lots of cash to support its growing dividend.
  • Verizon (VZ): After several years of decline, the telecom is growing both customers and free cash flow to fund its payout.
high-yield income stocks - 3 High-Yield Stocks for a Lifetime of Safe Income

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History shows dividend stocks beat out their non-paying siblings by a wide margin over time, and they do so with less risk. Companies that initiate a dividend and raise it tend to handily outperform both static dividend payers and non-payers.

Yet, don’t buy a dividend stock just because it has a high yield. Chasing yield increases risk because oftentimes companies with high yields are in trouble. Walgreens Boots Alliance (NASDAQ:WBA) had a 91-year history of paying dividends, increased its payout for almost 50 consecutive years and the dividend yield was 7.5%. Just the other day, it slashed the payout by nearly half.

Too often, investors think dividend payments are like some form of Newton’s law of motion: An object in motion tends to stay in motion. Simply because a company has been paying a dividend doesn’t mean it always will. The oft-forgotten part of Newton’s law says unless acted upon by an unbalanced force. In Walgreens’ case, that was high debt levels and evaporating cash flows. The dividend became unsustainable.

What follows are three high-yield dividend stocks investors can safely buy for a lifetime of income. They won’t have to worry the dividend will be cut or suspended.

AGNC Investment (AGNC)

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Mortgage real estate investment trust (mREIT) AGNC Investment (NASDAQ:AGNC) offers investors the security they are seeking. While the housing market may seem fragile, AGNC invests in agency mortgage-backed securities (MBS). It borrows money at low rates and invests it in high-yield, long-term assets, mostly MBS.

An agency is a government-sponsored enterprise such as Fannie Mae, Freddie Mac or Ginnie Mae. AGNC’s loans are underwritten by the full faith and credit of the federal government. That means the risk of default to AGNC Investment is minimal. 

AGNC has an issue in a high-interest rate environment. The rates hurt the REIT’s ability to buy low and sell high. According to AGNC President and CEO Peter Federico, “In environments like this when treasury prices fall abruptly and the market struggles to find its new equilibrium, Agency MBS typically underperformed.” Fortunately, the Federal Reserve is hinting it may cut interest rates as many as three times this year. MREITs like AGNC Investment tend to outperform during such falling rate periods.

AGNC’s dividend yields 14.5% annually. It also pays out monthly and has done so since its mid-2008 initial public offering. If the Fed eases its death grip on interest rates, 2024 could be the year AGNC Investment delivers both solid dividend income and capital appreciation.

International Business Machines (IBM)

Photo of IBM (IBM) building as seen through the canopy of a tree. IBM logo is in large letters on side of building.
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Big Blue is the next dividend stock investors should consider for a lifetime of safe income. International Business Machines (NYSE:IBM) essentially spawned today’s information technology industry, though it is no longer the computer company of old. It is a thriving tech giant in its own right, with tentacles reaching deep into all corners of today’s newest advances.

That doesn’t make it a fast-grower, though. It falls out of favor at times, with investors looking for momentum stocks enjoying hypergrowth in their formative years. What they get with IBM is a stable performer that long ago proved it is a reliable dividend payer. Its stock is up just 35% over the past five years compared to the S&P 500 near doubling, but IBM’s total return boosts that up to about 65% returns.

IBM’s dividend of $6.64 per share currently yields 4.15% annually, well ahead of the benchmark index’s yield. Big Blue hasn’t missed a quarterly dividend payment since 1916 (its very first payment was in 1913). It also has 28 years of consecutive dividend increases.

IBM’s dividend is safe because its operations throw off mountains of cash. It forecasted more than $10 billion in free cash flow (FCF) this year. The stock trades at about 14x that FCF, making it a cheap but good long-term stock to buy now.

Verizon (VZ)

5G stocks, VZ stock
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Telecom giant Verizon (NYSE:VZ) is the third stock to own for sustainable dividend payments. Its dominant position in the wireless market attracts a loyal customer base, giving it a competitive advantage. FCC data indicates it still has the largest 4G LTE network, and the ongoing national buildout of 5G networks allows it to continue chipping away at T-Mobile’s (NASDAQ:TMUS) lead.

At one time, Verizon was the undisputed industry leader but rested on its laurels. That allowed its rivals to take market share and steal away customers. Both T-Mobile and AT&T (NYSE:T) grew their base, while Verizon struggled to retain customers. That’s changing now as it recently added 100,000 postpaid net additions and 581,000 retail postpaid additions and enjoyed its fourth consecutive quarter of 400,000 or more net broadband additions. 

The stock is bouncing back, rising 30% from its lows as the business improves. The gains also benefited its FCF creation. Verizon now expects to generate $18 billion in FCF, $1 billion more than previously anticipated. It has long had strong and stable cash flow to support its dividend, which yields 6.81% annually. The cash flow payout ratio of around 53% is healthy and leaves plenty of room for future growth.

On the date of publication, Rich Duprey held a long position in T and WBA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

Article printed from InvestorPlace Media, https://investorplace.com/2024/01/3-high-yield-stocks-for-a-lifetime-of-safe-income/.

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