It is a difficult time to find attractive stocks if you are a dividend investor. The S&P 500 index (^GSPC 0.05%) is trading near all-time highs and offering a historically tiny dividend yield of roughly 1%. That’s simply too low a number to be interesting.
Don’t fear, if you do a little digging, you can still find attractive high-yield stocks. Three strong investment candidates today are Enterprise Products Partners (EPD 0.73%), Realty Income (O +1.74%), and PepsiCo (PEP +1.34%). Here’s why these high-yielders, with yields of up to 5.9%, should be on your radar today.
Image source: Getty Images.
Enterprise Products Partners: A high-yield middleman
Enterprise Products Partners may seem like an odd suggestion, given that it operates in the energy sector. The geopolitical conflict in the Middle East has upended that sector. However, the master limited partnership’s (MLP’s) lofty 5.9% yield is backed by a toll-taker business, not high energy prices. The cash flows backing the distribution come from the fees it collects for moving energy around the world. The price of what is being moved isn’t really all that important to the MLP or its ability to cover its distribution.
Notably, the distribution has been increased annually for 27 years despite oil prices rising and falling dramatically over that span. Moreover, Enterprise’s distributable cash flow covers its distribution by a very healthy 1.7x. There’s little reason to worry about a distribution cut, since the MLP’s $5.3 billion in capital investment plans suggest that more slow-and-steady growth is highly likely. And that, in turn, should mean more distribution increases.
Enterprise Products Partners
Today’s Change
(-0.73%) $-0.27
Current Price
$36.57
Key Data Points
Market Cap
$80B
Day’s Range
$36.41 – $37.05
52wk Range
$30.01 – $40.16
Volume
3.4M
Avg Vol
4.2M
Gross Margin
13.45%
Dividend Yield
5.94%
Realty Income: A boring story that just keeps paying
Realty Income is a large net-lease real estate investment trust (REIT). It predominantly owns single-tenant retail properties for which the tenant is responsible for most property-level costs. While any single property is high risk, since there’s only one tenant, the overall portfolio risk is very low, given the over 15,500 properties Realty Income owns. The diversification story gets even better when you consider that the REIT owns assets across North America and Europe. It is built from the ground up to be a reliable dividend stock.
So dividend investors considering the stock’s lofty 5.4% yield shouldn’t eye the dividend with trepidation. In fact, the dividend has been increased annually for 31 years. And while the adjusted funds from operations payout ratio may sound high at roughly 70%, that’s actually a strong figure for a net-lease REIT. By law, REITs must pay out 90% of their taxable earnings to avoid corporate-level taxation. Essentially, REIT’s like Realty Income are designed to transfer large sums of cash to shareholders.
Today’s Change
(1.74%) $1.08
Current Price
$63.12
Key Data Points
Market Cap
$58B
Day’s Range
$62.40 – $63.26
52wk Range
$55.86 – $67.94
Volume
8.3M
Avg Vol
5.9M
Gross Margin
50.46%
Dividend Yield
5.22%
PepsiCo: A reliable Dividend King that’s on sale
When it comes to reliable dividend stocks, the creme de la creme are Dividend Kings. Only companies that have increased their dividends annually for 50+ years get to claim the crown. PepsiCo, one of the world’s largest consumer staples companies, is a Dividend King, and it offers a well-above-market yield of 4.1%.
Today’s Change
(1.34%) $1.87
Current Price
$141.39
Key Data Points
Market Cap
$191B
Day’s Range
$140.20 – $142.14
52wk Range
$128.11 – $171.48
Volume
9.7M
Avg Vol
7.3M
Gross Margin
54.22%
Dividend Yield
4.12%
PepsiCo is out of favor right now because growth has been slow, and changing buying habits and food guidelines have investors worried about the future. However, the Dividend King has adjusted to shifting market dynamics before, and there’s no reason to believe it won’t do so again this time around. Meanwhile, its price-to-sales, price-to-earnings, and price-to-book ratios are all below their five-year averages. This reliable, high-yield dividend stock looks like a bargain.
You don’t need to take on big risks to get big yields
Every investment comes with risk, but on the risk spectrum, Enterprise, Realty Income, and PepsiCo all come in at the low end. And yet they still offer yields that are dramatically higher than the market. If you are looking for dividend stocks in today’s low-yield market, you should consider putting each of these three stocks on your short list.
