Dividend Ratings (The more blue in overall, the better)
Many investors looking for a dividend stock be it for income or reinvestment gravitate towards the highest yields. However, extremely high yield stocks usually are not sustainable and can be really risky investments.
As we stated in a previous article, high yield stocks are a bit like buying apples. You need to inspect every single apple to make sure that there is no mold or bruising. If you are not diligent in its inspection, then you may end up stuck with a bad apple. When buying stocks (especially ones with a high yield) you need to inspect them with care. Stocks with the highest yield may not always be the best, as they may consist of unsustainable stocks that will not be able to keep their high dividend yield. Don't get stuck with a bad apple.
The best high yield dividend stocks should offer investors a high yield, while also offering future growth, sustainability and stability. Below are some of the best dividend stocks that offer a high payout, while also offering a proportional risk-reward.
Stag Industrial (NYSE:STAG)
Omega Healthcare Investors (NYSE:OHI)
Johnson and Johnson (NYSE:JNJ)
Cisco Systems (NASDAQ:CSCO)
Spectra Energy Partners (NYSE:SEP)
This list consists of a wide range of stocks in many sectors. Different types of investors will gravitate towards different stocks, and every stock listed here offers different benefits.
Dividend Yields and Payout Ratios (Compared)
There is a direct relationship between the dividend and payout yield, with the highest yielding stocks having the highest payout ratios (CVX is an outlier). Note that all payout ratios are under 100%, making every dividend in this list sustainable.
Stock Growth (Compared)
This Google Finance chart shows the growth of the ten stocks over five years. While all stocks didn't shrink, some had little change. From a viewpoint of a growth investor, stocks such as VZ, TGT and CVX performed poorly, but for someone looking for stable dividend income all of these stocks are good candidates.
Now that we've looked at the stocks compared, let's look at them individually.
1) Stag Industrial
STAG Industrial, Inc. is a real estate investment trust. The Company is focused on the acquisition, ownership, and operation of single-tenant, industrial properties across the United States, owning approximately 316 properties in 37 states. They currently yield 5.35%.
Over the past year, STAG has grown 23.16% in value, and in the past 5 years they have grown an astounding 82.06%. For the past three years, STAG has grown in revenue; in 2014-15 growing by 25% and 2015-16 growing by 14%. STAG focuses on growth by acquiring new properties. It differs from other REITs because of its diverse inventory of 316 buildings/properties with the company's biggest tenant only representing 3.1% of total revenue. This lowers the riskiness of investing in the company, while still allowing for high reward. Since the company's IPO in 2011, its portfolio of properties has grown by 369%.
Looking at the dividend growth chart, we immediately see the -66% fall of dividend yield in 2013, but steady increases from that point. STAG was forced to decrease their dividends due to an overly aggressive dividend strategy in the first years of being public. Since then, they have seen four years of consecutive dividend increases, and strong growth. STAG estimates its target market at about $250 billion in size, of which it has just a 1% market share, leaving lots of room for expansion in a sector with little competition.
In addition to this future growth and steady financials, STAG also pay monthly dividends, making it perfect for monthly income.
Takeaway: This RIET stock (with a monthly dividend) will see great company growth and related dividend growth in the coming years.
2) Omega Healthcare Investors
Omega Healthcare Investors, Inc. is a self-administered real estate investment trust (REIT). The Company maintains a portfolio of long-term healthcare facilities and mortgages on healthcare facilities located in the United States and the United Kingdom, owning approximately 996 properties in 49 states. They currently yield 8%.
Over the past year OHI stock value decreased 7%, but in the past 5 years grew 49.73%. For the past three years, Omega has steeply grown in revenue; in 2014-15 growing by 47% and 2015-16 growing by 21.14%. OHI, like STAG focuses on its growth by rapidly acquiring properties to add to its portfolio of 916. In 2016 OHI acquired 81 facilities, investing a total of $1,328,269. Omega revenues will also benefit from America's fast growing demographic, and growing elderly population in the coming years. OHI also is a lot less volatile than other REITs because it does not directly operate its assets, but instead has subcontractors operate the buildings for them. Omega only collects the mortgage and rent payments, making it much less volatile than retail and hotel REITs. An example of this would be the the 2007 recession - barely affecting OHI because of long term care facility demand.
Looking at the dividend growth chart, we see a steady upwards trend of dividend payouts. As Omega continues to grow, it also distributed more and more of its earnings to investors, raising their yield since 2004 (with the exception of two outliers). A reason why is that while they are experiencing growth, they must also distribute at least 90% of their taxable income each year to shareholders as dividends.
Take Away: A very high yield, low(er) risk REIT that steadily increases dividends.
Consolidated Edison, Inc. (Con Edison) is a holding company. The Company operates through its subsidiaries, which include Consolidated Edison Company of New York, Inc. (CECONY), Orange and Rockland Utilities, Inc. (O&R), Con Edison Clean Energy Businesses, Inc. (the Clean Energy Businesses) and Con Edison Transmission, Inc. (Con Edison Transmission). CECONY's principal business operations are its regulated electric, gas and steam delivery businesses. They currently yield 3.46%.
Over the past year ED has only risen 7.34%, and in the past 5 years 33.44%. Being a utility company in a mature, regulated market ConEd hasn't seen much increases in revenue; in 2014-15 gaining 7% and in 2015-16 gaining 4%. They have around 4.5 million customers, concentrated in Westchester, NY. ED is not a growth stock, but rather it is known for its extreme stability and dependability. The utility has paid dividends since 1885.
Looking at the dividend growth chart, we see a dependable dividend increase, which has recently been increasing more quickly. ED boasts 42 years of consecutive dividend increases, and while ConEd is not well known for growth they are a staple in many investors portfolios because of their dependent dividend.
Takeaway: ED has a extremely dependent dividend and has increased its yield (now 3.46%) for 42 consecutive years.
4) Johnson and Johnson
Johnson & Johnson is a holding company. Through its subsidiaries, JNJ is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. The company is organized into three segments: consumer, pharmaceutical and medical devices. JNJ is a huge company that does business in a wide range products, raking in a gross profit of $50,205,000 for 2016. Johnson and Johnson is another dependable dividend stock, yielding 2.72%
Over the past year JNJ has risen 8.61% and in the past five years has risen 91.96%. Johnson and Johnson is a mature company involved in mature markets, so revenue for the past years has remained similar. 2014-16 showed a decrease in gross profit of 6% ($50B to $48B), but in 2016-17 recovered and gained 3.43% in gross profit ($48B to $50B). JNJ is a well known stock because of its strong growth, and dependable dividend.
Johnson and Johnson has a steep upwards trend of dividend growth that investors love, and has consecutively increased their dividend for 52 years. While their 2.72% yield is not as high as others in this list it is over the S&P 500 average of 1.93%. Investors invest in this stock because of its growth and dependable dividend increase.
Takeaway: For dependent growth, both in value and dividend yield JNJ is king.
5) Cisco Systems
Cisco Systems, Inc. designs and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world. Cisco operates in a number of segments including the fast growing IOT (internet of things), and three geographical segments; Americas, Europe, the Middle East and Africa (EMEA), and Asia Pacific, Japan and China (APJC). CSCO has great potential for future growth and yields 3.37%.
Cisco experienced a devastating fall when the 2000 tech bubble popped, but since then has experienced growth. In the past year they experienced 29.01% growth, and over five years experienced 105.17% growth. Investors like Cisco because of its huge potential for growth. Cisco is an old tech business with a new focus - transitioning into the rapidly growing cloud services and IOT sectors. And, with rapid growth both now and in the future, the already high yielding CSCO has great potential for dividend growth.
CSCO has dependently increased their quarterly dividend every year since 2013. We see a large previous dividend growth; from 2011-17 their dividend grew 80%. Earnings reports are strong for Cisco, and being a mature company capital return for investors is a priority. If Cisco kept increasing at this rate, investors could have a very high dividend in the coming years With a strong yield of 3.42% now, and a bright future Cisco is a great opportunity for dividend-growth investors.
Takeaway: This silicon valley giant has great potential for future dividend growth.
6) Spectra Energy Partners
Spectra Energy Partners, L.P. through its subsidiaries and equity affiliates, is engaged in the transmission, storage and gathering of natural gas, the transportation and storage of crude oil, and the transportation of natural gas liquids. As of December 31, 2016, it had over 15,000 miles of transmission and transportation pipelines, and the storage of natural gas in underground facilities with aggregate working gas storage capacity of approximately 170 billion cubic feet in the United States and Canada. SEP is a stable stock with a high yield 6.22%.
SEP has experienced strong growth over the past five years - growing 45%, but in the past year has dropped 3.85%. Unlike other gas and pipeline companies that have not done well, Spectra is a strong growth strategy by adding new yearly expansion projects, and keeping its payouts to shareholders lower than it could every quarter, electing to use some of that money to reinvest in the business. Gross revenue has increased for the past two years because of this; in 2014-15 growing 8% and in 2015-16 growing .35%.
Spectra has a strong current dividend of 6.22%, and has consecutively increased their dividend for 10 years. Since 2014 SEP has increased their dividend quarterly, the most recent being a change of 2% last quarter. Spectra is a solid high yield stock that grows its dividend dependently.
Takeaway: Spectra is a good stable stock yielding 6.22%. There is more reward than risk.
AT&T Inc. is a holding company. The Company is a provider of communications and digital entertainment services in the United States and the world. T is an a wide range of sectors - wireless communications, data/broadband and internet services, digital video services, local and long-distance telephone services, telecommunications equipment, managed networking, and wholesale services. Their strong growth in revenue allows for an ever increasing yield of 5.08%.
AT&T has strong 5 year growth, growing 14%, but has remained the same on one year growth, losing 3%. However, investors love this stock because of its gross earnings. From 2015-16 AT&T gross revenue grew by 8.9% ($78B-86B), and from 2014-16 it grew a staggering 20% ($72B-86B). For a mature company, this growth is huge and it directly relates to its high dividend.
T has a dividend yield of 5.08%, and is has increased its yield for 32 consecutive years. This is a fairly safe stock that has an amazing yield. T also has potential for a lot of future growth, working on a new 5G network and expanding its newly acquired DirecTV.
Take Away: A mature stock in the communications industry with future growth potential that has an ever increasing yield.
Verizon Communications Inc. is a holding company. The Company, through its subsidiaries, provides communications, information and entertainment products and services to consumers, businesses and governmental agencies. Its segments include Wireless and Wireline. VZ is AT&T's largest competition and this fuels fast growth. They currently yield 4.95%.
Verizon experienced a fall of 9% in stock value in the past year, but gained 13.5% for the past five years. Though VZ has seen a decrease in gross profit, they are very focused on growth. VZ is looking at multiple acquisitions and recently made a $1.5B deal with Corning (NYSE:GLW) to expand their fiber optics network.
VZ has a nice dividend yield of 4.95%, and has seen strong dividend growth for the past 10 years. This is mainly fueled by its rapid growth which, in turn is fueled by the intense competition in the communications segment. Like AT&T, VZ is a good investment for someone looking for dividend growth.
Takeaway: Intense competition in the wireless segment leads to VZ growing rapidly which makes its dividend yield quickly rise.
On the spreadsheet pictured in the introduction, Target is the stock with the most green. Target sells a range of general merchandise and food. The majority of Co.'s general merchandise stores sell an edited food assortment, including perishables, dry grocery, dairy, and frozen items. Co.'s digital channels include a range of general merchandise, including items found in Co.'s stores, along with a complementary assortment such as additional sizes and colors sold only online. As of Jan, 2017 they have 1802 stores in the U.S. TGT currently yields 4.19%
Target has poor stock growth, falling in the past year and only gaining 3.02% in the past 5. They have seen steady revenue, hovering around $20-20B for the past two years. The financials are not the selling point of this stock - their dividend increases are.
Looking at the dividend increase chart, we can see a steep upwards trend of dividend growth. From 2010-Present TGT has increased their dividend by 252%. In addition to this quick growing 4.19% yield, many investors/analysts feel that target is trading at a massive discount, and could be a huge opportunity.
Takeaway: Target is a high yield stock that is trading at a discount, and offers rapid dividend growth.
Of all the stocks listed here, CVX is probably the most controversial as it is one of the most shorted stocks traded today. However, we see great potential and a safe yield for today. Chevron is engaged in energy and chemicals operations. Upstream operations consist of, among others, exploring for, developing and producing crude oil and natural gas; transporting, storage and marketing of natural gas; and a gas-to-liquids plant. They are an oil and energy giant in the US and worldwide, and currently have a yield of 4.09%.
Though some investors may not like CVX, it gained value for both one year and five years. It grew 6% in the past year, and 3.97% in the past five. Though losing around 30% in gross profit for the past two years, the past two quarters have been in the black, and they beat in earnings by a lot for Q4 2016.
Though the oil downturn lead to the company stopping dividend hikes for 10 quarters, CVX recently began raising them again. Like TGT many think that Chevron is trading at a discount, and it could be a great opportunity for growth and strong dividends.
Takeaway: CVX is a risky investment, but it offers a high yield and earnings growth in the past two quarters.
Here's a summary of the main points on each stock:
Stag Industrial - This RIET stock (with a monthly dividend) will see great company growth and related dividend growth in the coming years.
Omega Healthcare Investors - A very high yield, low(er) risk REIT that steadily increases dividends.
ConEd - ED has a extremely dependent dividend and has increased its yield (now 3.46%) for 42 consecutive years.
Johnson and Johnson - For dependent growth, both in value and dividend yield JNJ is king.
Cisco Systems - This silicon valley giant has great potential for future dividend growth.
Spectra Energy Partners - Spectra is a good stable stock yielding 6.22%. There is more reward than risk.
AT&T - A mature stock in the communications industry with future growth potential that has an ever increasing yield.
Verizon - Intense competition in the wireless segment leads to VZ growing rapidly which makes its dividend yield quickly rise.
Target - Target is a high yield stock that is trading at a discount, and offers rapid dividend growth.
- Chevron - CVX is a risky investment, but it offers a high yield and earnings growth in the past two quarters.
Disclosure: I am/we are long STAG, VZ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Please do further research on the listed stocks before investing.