If you’re taking on the risk of stocks, you’d better get paid.
Investing is fundamentally a balance between risk and reward. And right now, it’s hard to justify some of the risk that investors are taking on in popular dividend stocks. Consider that the average dividend payout for S&P 500 components is just 1.7% while the yield of 10-year U.S. Treasury bonds is about 3.2%. Why would you take on the added risk of stocks in a market that is down about 17% on the year, when you can generate nearly twice the income in rock-solid Treasurys? If you’re looking for income and not afraid of the risks of the stock market in 2022, then consider these picks instead of the usual suspects. The following nine stocks aren’t necessarily less risky than the typical company on Wall Street, but they do offer more than three times the yield to provide a better rate of return than your average dividend payer.
Alliance Resource Partners LP (ticker: ARLP)
A roughly $3 billion producer of oil, gas and thermal coal, Alliance has been lifted by rising energy prices and a big snap-back in the wake of COVID-19 disruptions. ARLP stock has doubled since Jan. 1 as a result. The company has approximately 550 million tons of proven coal reserves, and while the long-term threat of climate change continues to hang over this stock the bottom line is that near-term demand is very strong. Case in point: Revenue is set to surge 60% in fiscal 2022 and another 10% in fiscal 2023. The company has generously ramped up dividends lately, from just 10 cents quarterly in early 2021 to 40 cents per share as of its latest quarterly distribution. If that payout holds, as it should given this strong performance, ARLP will generate more than three times the dividends of the typical S&P 500 component over the next year.
Dividend yield: 6.4%
British American Tobacco PLC (BTI)
BTI provides tobacco and nicotine products to consumers worldwide. This includes products under the Lucky Strike, Pall Mall, Camel and Newport brands. While smoking is obviously bad for your health and there isn’t exactly a fast-growing customer base as a result, the risks are well known and sales to existing users of tobacco are very reliable. This reliable, “risk off” revenue stream has resulted in BTI rising about 6% in an otherwise tough year for stocks. Dividends have moved up to 74 cents per quarter, up from about 59 cents at the end of 2017, and operations remain robust at this $90 billion tobacco giant.
Dividend yield: 7%
Claros Mortgage Trust Inc. (CMTG)
A recently IPO’d stock that only entered public markets last year, Claros stands out among other mortgage stocks because of its modest gain in 2022 even as other peers have struggled amid the rising interest rate environment and a general “risk off” environment on Wall Street. There’s admittedly not as much history here for this stock, but it has consistently paid a dividend of 37 cents per quarter that adds up to a generous yield at current pricing. What’s more, the stock continues to grow its business as evidenced by its second-quarter earnings report in August that included $1 billion of new loans originated on the quarter.
Dividend yield: 8%
Devon Energy Corp. (DVN)
Devon is an independent energy company engaged in oil and natural gas production across more than 5,000 domestic well sites, with a valuation of roughly $45 billion. Thanks to rising energy commodity prices as well as strong demand, DVN is projecting revenue growth of more than 60% this fiscal year and has seen shares rise by more than 50% year to date. Its dividends have also grown substantially, with the latest distribution of $1.27 in June up from just 11 cents at the end of 2020. The payouts are volatile, but with persistently high prices for oil and gas it’s likely DVN will continue to be a high dividend payer for the foreseeable future.
Dividend yield: 7.5%
Enterprise Products Partners LP (EPD)
Enterprise is a $57 billion “midstream” energy stock, meaning it stands between companies that take oil or gas out of the ground and the wholesalers and refiners at the end of the supply chain. That’s admittedly not a business that generates the same juicy margins as explorers, but it is an incredibly reliable one. What’s more, strong demand has created a big tail wind for EPD as it moves energy products around the economy. In August EPD reported distributable cash flow that was up 30% to a record $2 billion in the second quarter. And looking forward, EPD boasts roughly $5.5 billion worth of projects earmarked through 2025 to ensure a strong flow of dividends in the future. Enterprise stock is up about 20% so far this year.
Dividend yield: 7.2%
Ethan Allen Interiors Inc. (ETD)
Ethan Allen is the smallest stock on this list, valued at less than $600 million. But when it comes to income potential, this is a high-yield dividend stock that punches above its weight. ETD has embarked on an ambitious “vertical integration” strategy that now results in 75% of all its furniture being designed and manufactured in its own North American workshops, meaning better cost and quality controls. It also has allowed Ethan Allen to avoid some of the chronic supply chain issues its competitors have faced. The result is a well-run dividend stock that pays a generous yield, and has shown stability in an otherwise challenging market.
Dividend yield: 5.4%
Icahn Enterprises LP (IEP)
The Wall Street firm run by iconic activist investor Carl Icahn, the IEP empire is nearly 90% owned by its namesake chairman. The rest of the firm’s available ownership allows individual investors to take part in his success. As a publicly traded hedge fund of sorts, shares of Icahn Enterprises rise and fall based on the performance of underlying investments. Many of its business segments can be cyclical, such as energy or homebuilding or consumer apparel companies, but it is clearly well run given its performance this year that includes a small gain for shares since Jan. 1, while the rest of Wall Street has melted down. What’s more, a massive dividend payment of $2 per share adds up to a jaw-dropping yield at present that makes this high dividend stock a cut above the rest.
Dividend yield: 15.8%
National Health Investors Inc. (NHI)
The roughly $3 billion National Health Investors specializes in financing to senior housing and medical investments. While structured as a real estate investment trust, or REIT, NHI doesn’t actually operate these facilities but instead is involved in transactions including sale-leaseback arrangements, joint ventures, mortgages and other investments. This allows NHI to have a piece of a broad portfolio consisting of skilled nursing facilities, medical office buildings and specialty hospitals around the U.S. Health care is a reliable and recession-proof sector, meaning the partners NHI does business with are very likely to return the capital that’s invested — and fuel reliable dividends for shareholders in this high-yield dividend stock as a result. Shares are up 13% so far in 2022 in what has been an otherwise challenging market on Wall Street.
Dividend yield: 5.5%
Vornado Realty Trust (VNO)
Perhaps the most aggressive stock on this list, Vornado has suffered a bit over the last several months thanks to its business of owning and operating office space in key urban markets. Thanks to both the work-from-home trend as well as a rising-rate environment that makes loans for new buildings more expensive, VNO is down sharply for the year. However, this $5.7 billion real estate investment trust has staying power and its environmentally friendly office space in top-tier markets including New York City, Chicago and San Francisco has great long-term value even if there are short-term headwinds. Besides, at current pricing this high dividend stock offers payouts that are currently about 5 times that of the typical S&P 500 stock right now.
Dividend yield: 7.6%
9 high-yield dividend stocks to buy:
— Alliance Resource Partners LP (ARLP)
— British American Tobacco PLC (BTI)
— Claros Mortgage Trust Inc. (CMTG)
— Devon Energy Corp. (DVN)
— Enterprise Products Partners LP (EPD)
— Ethan Allen Interiors Inc. (ETD)
— Icahn Enterprises LP (IEP)
— National Health Investors Inc. (NHI)
— Vornado Realty Trust (VNO)
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9 High-Yield Dividend Stocks to Buy originally appeared on usnews.com
Update 09/09/22: This story was previously published at an earlier date and has been updated with new information.
