3 High-Yield Stocks Paying Up to 10.7%
December 6, 2019
Finally: High-Yield Stocks That Pay Safe Dividends
I trust most high-yield stocks for income about as much as I trust Wesley Snipes for tax advice.
Sure, the payouts look tempting. But many investors have skipped over these businesses for good reason.
You only need to start digging into the filings to see why: declining sales, thinning profit margins, and outright crooked managers. High-yield stocks often represent troubled businesses with bleak prospects. It’s often only a matter of time before the dividend gets sliced.
But sometimes you find an exception. Once in a while, a rare company crosses my desk that offers both a high yield and a reasonable degree of safety.
Today I want to highlight three such examples. To be clear, these high-yield stocks come with some risk (you can’t call any large payout a sure thing). But each one of these businesses generates ample cash flow and will likely be able to fund its payout for years to come.
Iron Mountain Inc
You’ve run out of space to stash those growing piles of brokerage statements, tax documents, and insurance information. What to do? You could rent some space from Iron Mountain Inc (NYSE:IRM) and, for a modest fee, stick all that paperwork there.
Iron Mountain owns more than 1,450 storage facilities in about 50 countries. (Source: “Iron Mountain Inc: We Protect What You Value Most,” Iron Mountain Inc, November 12, 2019.)
The company earns steady rental income from document storage, in addition to fees for scanning, transportation, and retrieving physical records. And because these properties have little in the way of overhead, almost every dollar of revenue flows to the bottom line.
This turns into safe, oversized dividend checks for shareholders. Management has paid out a distribution every quarter since 2015, which they have boosted on five occasions. Today, Iron Mountain investors receive quarterly payments of $0.62 per share, which comes out to an annual yield of 7.6%
TC Pipelines Corporation
I like dividend hikes. I like it even more when a company promises to boost its payout several years into the future.
Case in point: TC Energy Corporation (NYSE:TRP).
The Canadian pipeline giant recently hiked its quarterly dividend, raising the forward yield on TRP shares to 4.5%.
But you want to know the best part? CEO Russ Girling predicted in a note to shareholders that the company’s dividend will grow between eight percent and 10% over the next two years, with more dividend hikes beyond 2021. (Source: “TC Energy to highlight sustainable long-term growth at Investor Day,” TC Energy Corp, November 19, 2019.)
How can management be so optimistic? I often describe pipelines as the “toll roads” of the oil patch, earning a fee on every barrel of oil shipped through them. Thanks to America’s shale revolution, existing routes remain filled to capacity. That has translated to soaring profits for the company and rising dividends for shareholders.
Annaly Capital Management, Inc.
If you want to make more money in the stock market, then it pays to invest in “alternative banks.” My colleague Jing Pan coined the term to describe the growing number of mortgage real estate investment trusts (MREITs).
Alternative banks are pretty straightforward to wrap your head around. Like traditional banks, these companies borrow money and invest the proceeds into higher-yielding securities. Their profit, called the spread, comes from the difference between what they collect in interest on their loans and what they pay to lenders.
But unlike regular financial institutions, alternative banks have no branches, tellers, or ATMs. With so little in overhead, almost every dollar of profit flows to the bottom line. As a result, some of these firms pay yields upward of 21%.
Annaly Capital Management, Inc. (NYSE:NLY) is one of my favorites. It has a two-decade-long track record, earning reliable income from its portfolio of residential mortgages. Its shares come with a respectable upfront yield of 10.7%.
Of course, this higher yield comes with higher risk. Annaly has cut its dividend from time to time, depending on swings in interest rates. But over the long haul, savvy investment decisions on the part of its executives should reward shareholders.
