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All Contents © 2019The Kiplinger Washington Editors
By Will Ashworth
| May 22, 2019
Google the question “What’s considered a high dividend yield?” and you get more than 65 million results. That’s because many investors are on the hunt for dividend stocks to buy that not only appreciate over time but also pay a high dividend.
So what is a high-dividend yield stock? One that pays 1%? 3%? 5%? The truth is there is no strict rule.
If you are interested in high-yield dividend stocks, it’s better to focus on a company’s history of growing its dividend rather than just looking for the juiciest dividend yields. That’s because dividend yields are often high due to some problem with the business that’s knocked its share price lower.
That said, if you can find a group of stocks that yield 5% and have demonstrated the ability to grow the annual payment over a decent amount of time, double-digit total returns won’t be nearly as difficult to achieve.
The trick is finding those stocks. Here are seven high-yield dividend stocks to buy with a payout of 5% or more that I believe can get the job done.
Note: This story was originally published on InvestorPlace in March 2019. It has since been updated and republished.
The integrated oil and gas company has come a long way since the Deepwater Horizon oil spill in 2010.
BP (BP) currently yields 5.6%. It has paid a quarterly dividend for 33 consecutive quarters starting with a 42-cent payment in Q4 2010. For 15 quarters between Q3 2014 and Q1 2018, it paid a 60-cent quarterly dividend, opting to retain more of its cash flow. With the September 2018 payment, BP increased its quarterly dividend to $0.6150.
In March 2017, I gave InvestorPlace readers five reasons to own BP stock.
Included in the mix was the company’s projection that its free cash flow would grow from $1.8 billion to $24 billion by 2021. That projection was based on a $55 barrel of oil. In fiscal 2018, BP finished the year with $7.8 billion in free cash flow. It now expects to generate between $14 billion to $15 billion in free cash flow by 2021, down from its earlier projections, but much higher than where it was in fiscal 2016.
It expects to achieve its free cash flow projection for 2021 by adding approximately 900,000 barrels of oil equivalent per day with many of the 16 projects required to add this capacity already underway.
I don’t know if BP will hit its guidance. However, the 5.6% dividend yield will help you while wait to find out.
Love him or hate him, Carl Icahn sure knows how to make money for his investors, and Icahn Enterprises (IEP) is next on our list of high-yield dividend stocks.
Year-to-date, IEP has a total return of 29%. Over the past 15 years, IEP’s annualized total return was 14.8% with approximately 43% of those gains from dividends. Currently yielding 10.75%, IEP increased its quarterly distribution by 11.3% to $2 a share, payable in April.
The last two fiscal years have been good for IEP shareholders. In 2018, Icahn Enterprises’ indicative net asset value increased by 3.7% to $8.2 billion. That might seem like a lot but you do that consistently for a decade, and it will show up in the company’s stock price.
In 2018, Icahn’s investment fund made 7.8% on the year, when most hedge funds lost money and the S&P 500 was also down.
Although Icahn is in his 80s, he’s still able to jump on the latest trends.
He might appear grumpy at times, but who cares when he delivers for shareholders.
Brookfield Property Partners (BPY) invests in real estate. Whether we’re talking office, retail, multi-family residential, self-storage, student housing, you name it, if there’s money to be made, BPY is in the mix.
BPY acquired a 100% leasehold interest in 666 Fifth Avenue in New York in August 2018. The property, bought at the height of the real estate market, was Jared Kushner’s money pit. He paid $1.8 billion for it. BPY took it off his hands for $1.3 billion. It plans to redevelop the building to bring up the rents and then hang on to it until the property is worth significantly more than the price Brookfield paid for it.
Over the last five years, this high-yield dividend stock has completely reshaped its business, taking five publicly traded companies private, a move that kept a lid on its share price. As a result, the company’s board’s approved a $500 million substantial issuer bid to buy back its shares at prices between $19 and $21.
Brookfield increased its quarterly distribution by 5% in Q4 2018 to $1.32 a share on an annual basis, a current yield of 6.6%. BPY is also affiliated with Brookfield Asset Management (BAM), which owns 52% of the company. You could do a lot worse when it comes to high-yield dividend stocks.
Who can resist a stock with the symbol FUN?
Cedar Fair (FUN) has been providing fun for kids and adults alike since 1870. It hasn’t been a public company for 148 years, though. It went public in 1987. And a $10,000 investment in its IPO would be worth approximately $875,000 today.
Its first park was in Sandusky, Ohio. Since then it’s added ten additional amusement parks, two outdoor water parks, one indoor water park, and four hotels. The entire system welcomes close to 26 million guests each year generating more than $1.3 billion in annual revenue. The average guest spends almost $48 visiting one of its amusement parks spread across North America.
Set up as a publicly traded partnership, Cedar Fair pays out most of its profits tax-free to its unitholders. Since going public, it’s paid out more than $2.6 billion in distributions to unitholders.
Cedar Fair might not grow its revenues by double digits but its current yield of 6.8% more than makes up for its lack of growth, making it one of the best high-yield dividend stocks to buy.
BCE (BCE) could best be described as a Canadian version of AT&T (T).
Canada’s largest communications company, BCE generates 53% of its annual revenue from its wireline business, which includes broadband, TV, and voice, 36% from wireless, and the remaining 11% from Bell Media. Its media business includes 30 TV stations, 30 specialty networks, four pay TV channels, 109 radio stations, and more than 200 websites.
In 2018, it grew free cash flow by 4.4% to CAD$3.57 billion.
BCE aims to payout between 65%-75% of its free cash flow annually. In 2018, it paid out CAD$2.68 billion for dividends, 6.6% higher than a year earlier. It currently yields 5.07%, 140 basis points less than AT&T. However, its long-term debt is just CAD$19.8 billion, less than 10% of Randall Stephenson’s baby.
BCE continues to be a stock for widows and orphans — in other words, one of the safest high-yield dividend stocks.
The second of two Brookfield picks, you might think I have a thing for the Brookfield group of companies; and, you’d be right. Brookfield Renewable Partners (BEP) is the renewable energy arm of Brookfield Asset Management, who own 60% of the company.
Of the seven high-yield dividend stocks on this list, BEP has the most risk and reward of the bunch.
On February 8, the company announced its Q4 results. On the top line, it had $3.0 billion in revenue, 13.6% higher than a year earlier. On the bottom line, it had $403 million in net income, almost eight times higher than in 2017. On a cash flow basis, its funds from operations (FFO) increased by 16.4% to $676 million.
So, where’s the risk, you might be asking? Well, renewable energy projects aren’t cheap.
In 2018, Brookfield finished the year with $10.7 billion in corporate and non-recourse debt. That debt comes with $6.5 billion in interest payments over the life of the obligations, 61% of which is due within five years.
That said, all Brookfield companies bring to the table a level of conservatism to their investment practices, ensuring that your 6.5% dividend is most certainly money in the bank.
Ford (F) is currently yielding 5.7%, a mouth-watering number for any dividend investor. However, as anyone who follows the car company, an investment in the Detroit-based business comes with more than its fair share of risk.
One of the risks is the company’s CEO, Jim Hackett.
I’m sure he’s a fine man, but I’ve said many times in the past that he’s the wrong person for the job. In October, while suggesting that Ford stock had likely fallen as far as it possibly could and was worth a sniff by investors, I argued that someone along the lines of General Motors’ (GM) CEO Mary Barra is what is needed to revive Ford glory.
Ford Executive Chairman Bill Ford feels I’m 100% wrong about Hackett.
“I think the ability to hold the now, the near and the far all together at one time is something you don’t always see in executives. And Jim (Hackett) has that,” Ford told Reuters on the sidelines of the CERAWeek energy conference in Houston. “We’re changing a lot. And change is difficult.”
It sure is.
That said, I do believe if you’re going to buy a stock under $10, Ford is the one to buy because it’s not going out of business anytime soon despite the lack of innovation.
This article is from Will Ashworth of InvestorPlace. As of this writing Ashworth did not hold a position in any of the aforementioned securities.
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