In a world of low interest rates, investors look for yield wherever they can find it. One common choice has become high dividend stocks. In the previous century, dividends did not compare well to bank interest rates. However, as interest rates fell in this century, many decided the equity risk of stocks were worth the higher yields that dividend stocks pay today.
These stocks tend to come from sectors which produce strong cash flows. Real estate often becomes a consistent source of these revenues. Real estate companies can choose to operate as real estate investment trusts (REITs). These REITs receive favorable tax treatment in exchange for paying at least 90% of their net income in the form of dividends. As a result, REITs pay an average dividend yield of 4.59%. This compares favorably to the average S&P 500 dividend yield of 1.84%.
Also, with some high dividend stocks included in the S&P 500, investors do not have to take on excessive risk to enjoy these yields. However, just because an S&P stock pays a high dividend does not make it a promising investment.
For example, Centurylink Inc (NYSE:CTL) pays a dividend of 11.2%. However, it has become a company in transition. As a result, it makes less profit than it pays in dividends. Hence that high dividend may not serve investors well. Likewise, Scana Corporation (NYSE:SCG) faces a troubled merger as well as costs it cannot recoup from abandoning construction on a nuclear power plant. Such overhangs dim much of the appeal of its 7.1% dividend yield.
However, some S&P 500 stocks pay high dividends without serious threats to the company’s long-term ability to prosper. These four high dividend stocks in the S&P offer both safety and dividend yields exceeding 6%.
Kimco Realty Corp (KIM): Div. Yield: 7.9%
Welltower Inc (NYSE:WELL) operates as a REIT specializing in senior housing, medical office and skilled nursing centers. The Toledo, Ohio-based company owns almost 1,300 properties across the U.S., Canada and the U.K.
Demographics serve as a huge tailwind for the company. With more than 10,000 people reaching Medicare eligibility every day, the need for Welltower’s space will only grow. WELL stock stands to benefit. Profits took a hit in 2017. However, the overall trend has leaned toward profit increases. Consensus net income estimates stand at $4.02 per share for this fiscal year. This gives the company a forward PE of around 13, well below industry averages. For the next two years, it expects profits to grow at about 4% per year.
The company paid $3.48 per share in dividends last year. At a stock price of around $54 per share, this places the dividend yield at over 6.4%. Moreover, future profit increases will lead to corresponding increases in the dividend.
WELL stock has produced income for investors since its founding in 1970. Although profit growth will come slowly, a reasonably low PE gives prospective buyers a low-priced entry point. Moreover, a high dividend yield and demographics that favor the company both here and abroad. All of these factors should make WELL stock a winner for income-oriented investors.
AT&T Inc. (T): Div. yield: 6.1%