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All Contents © 2018The Kiplinger Washington Editors
By James Brumley
| September 14, 2017
Do you ever just get tired of the constant attention required to consistently beat the market by actively seeking out the best opportunities at any given time? Or, said another way, does the idea of a collection of strong “buy ’em and forget about ’em” dividend investments seem appealing to you?
If so, don’t worry — you’re not alone. Plenty of people have grown weary of fighting tooth and nail for a little extra alpha, and are ready to take a more passive (and often more profitable) approach. In fact, it wouldn’t be wrong at all to earmark at least part of your portfolio to buy-and-hold dividend stocks no matter how much longer you’ve got until retirement.
With that as the backdrop, here’s a closer look at ten top dividend investments from the worlds of stocks, ETFS and even mutual funds … the pinnacle long-term kind of holding that lets time do the hard work for you. In no particular order…
Prices and data are from the original InvestorPlace story published on September 8, 2017. Click on ticker-symbol links in each slide for current prices and more.
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Dividend yield: 7.9%
It’s strange … Seagate Technology PLC shares are down more than 30% since February, with investors properly fearing the company hadn’t escaped the impact of a computer memory glut. What the market has yet to factor in is the explosion of demand for storage that will take shape as things like artificial intelligence and the Internet of Things will create a massive amount of data in and of themselves.
Seagate thinks that wave is coming though, and soon.
In the meantime, the sellers have simply overshot. Thanks to the pullback, STX is now priced at a very palatable trailing P/E of 12.4, a forward-looking P/E of 8.3, and best of all, a yield of 7.9% that should become plenty affordable again with just a little bit of revenue growth.
Dividend yield: 6.8%
Blackstone Group LP is one of those dividend investments that’s interesting not because it does one thing well, but because it does a little of everything and does it all well.
It’s generally categorized as an investment manager, though it wouldn’t be out of line to call it a business development company either. Blackstone Group does private equity, holds real estate, provides credit and facilitates the development of infrastructure projects, just to name a few of its areas of expertise.
Whatever it does, it bears fruit, leveraging a deep bench of experts and veterans. That’s how it’s able to maintain a superior dividend history, presently yielding a healthy 6.8%.
Dividend yield: 5.5%
Most people don’t think of bonds as high-yield investments. Indeed, companies generally like debt as opposed to issuing equity because it’s ultimately a cheaper form of financing. Some bonds that creep into the not-so-hot-credit arena, however, make for surprisingly high dividend payers, and the iShares 0-5 Year High Yield Corporate Bond ETF is one of the most effective ways of making such a play.
Let’s get straight to the point: SHYG is a junk bond fund. It’s not a fund that collects outright garbage though. It’s designed to hold debt of companies with potential and a viable business model, and it sticks to bonds that are at the upper tiers of “junk” status. As an example, bonds issued by Ally Financial Inc (ALLY) and Tenet Healthcare Corp (THC) are among its bigger positions … companies that may not be on rock-solid footing, but aren’t fighting for their lives either. The end result is a fund that currently yields about 5.5%.
Calling a spade a spade, AT&T Inc. isn’t without its challenges. Telecommunications have essentially become a commodity, as have cable television offerings. This nagging reality has made it tough for AT&T to grow.
On the flipside, AT&T hasn’t really been seen — or priced — as a growth stock in ages. It’s appreciated by investors as one of the market’s better dividend stocks to buy, and rightfully so. Its yield of 5.5% is still well above the market norm, and until consumers abandon their cell phones and abandon all forms of video entertainment, the company will be able to keep paying out dividends.
And just for the record, unlike some of its smaller telecom peers and rivals, AT&T can actually afford its dividend payout.
Dividend yield: 10.3%
It’s daunting to consider any energy stock when working your way through a list of potential dividend stocks to buy. The matter is doubly daunting when the stock in question has yet to return to profitability. Yet, while Sunoco LP is one of those outfits that’s not yet back in the black, its prospects for doing so next year along with its current yield of 10.3% may well mean SUN is one of the top dividend investments that everyone else is ignoring.
For perspective, the pros think Sunoco will grow from last year’s per-share loss of $5.26 to a profit of 86 cents per share this year, setting the stage for a move to a profit of $2.19 per share next year. Obviously the risk lies in the uncertainty of future oil prices, but with a payout like this one, it may be worth the risk.
Dividend yield: 5.3%
While stocks are one way to skin the dividend cat and high-yield bonds are another, there’s an option that falls in between the two … preferred stocks. And, the VanEck Vectors Preferred Securities ex Financials ETF may be the easiest and cleanest way to stake a claim in that narrow sliver, collecting a dividend on the order of 5.3% for your time as of the latest look.
Preferred stocks generally aren’t as iron-clad as bonds, which are in effect contracts that require interest payments as well as the outright return of capital once the bond matures. Simply put, preferred stocks don’t guarantee a dividend.
On the other hand, most preferred stocks do guarantee a dividend before owners of that common stock receive any kind of cash payout. Some preferred stocks are even cumulative, meaning owners are entitled to previously missed payouts before common stock owners receive any sort of dividend.
The VanEck Vectors Preferred Securities ex Financials ETF is a nice compromise between bonds and common stock, though sometimes as the expense of capital appreciation.
Dividend yield: 5.8%
This year has been a pretty good one for most bank stocks, with one odd exception … New York Community Bancorp, Inc. NYCB shares have fallen 26% since the end of last year, mostly in response to the now-botched (and expensive) deal to acquire Astoria Financial. A closer look at New York Community Bancorp, however, reveals this company is still effective, efficient, and most of all, still plenty profitable.
It’s also still more than capable of maintaining its quarterly dividend of 17 cents, translating into a yield of 5.8%. Investors just priced in the Astoria headlines while erroneously overlooking everything the company has been getting right. Their mistake is now an opportunity.
Dividend yield: 2%
Though they’re hardly commonplace, there are a handful of dividend investments that come in a mutual fund wrapper and an ETF wrapper. And, one of the best choices of these dual-choice holders for income-seekers is the Vanguard Dividend Appreciation ETF or its counterpart, the Vanguard Dividend Appreciation Index Fund Investor Shares.
The yield of right around 2% certainly isn’t jaw-dropping. In fact, it’s right around the average for the S&P 500 as a whole.
Where the Vanguard Dividend Appreciation stands above the average, however, is in its mission to focus on companies with a reliable track record (and reasonable expectations) of steady dividend growth. It really is one of those dividend holdings you can buy and not worry about again; Vanguard makes changes to its holdings as merited.
Dividend yield: 2.6%
The FlexShares Trust Quality Dividend Defensive Index Fund is a bit of a strange bird, but in a good way.
On the surface the FlexShares Quality Dividend Defensive ETF looks like just another index fund intended to mirror a benchmark. And it is. QDEF is built from the ground up to reflect the holdings and performance of the Northern Trust Quality Dividend Defensive Index.
The Northern Trust Quality Dividend Defensive Index isn’t your ordinary index though. It quantifiably seeks out strong yields and good track records of dividend payments, while applying fairly strict profitability and cash flow standards. There’s even a cap on its underlying stocks’ beta — nothing over 1.0, effectively ensuring a low-volatility ETF.
The yield of 2.6% isn’t a show-stopper, but it’s better than average, and the position will let you sleep well at night.
Dividend yield: 7.6%
Finally, though Macquarie Infrastructure Corp. is anything but a household name, it’s a name that has earned a spot on most lists of dividend investments to mull.
There’s a good chance you’ve relied on Macquarie infrastructure without even realizing it. The company, among other things, provides contracted jet-fueling services. It has also got a hand in other pies like wind and solar power, natural gas distribution and more.
All of its ventures are at least somewhat cyclical and potentially volatile, but none are going away. More than anything though, the yield of 7.6% should put this otherwise obscure name into the income-seeker’s spotlight.
This article is by James Brumley of InvestorPlace. As of this writing, he held a position in AT&T.
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