There are countless ways Americans can reach their retirement number, but time and again your best chance of success lies with buying high quality dividend stocks and reinvesting your payout in additional shares over the long term. This process, known as compounding, can rapidly grow your nest egg over time.
Dividend stocks have other advantages, too. A dividend usually acts as a beacon for investors to alert them to a company with a sound business model. Think of it this way: what company is going to share a percentage of its profits with investors if it doesn't believe its business model is on solid footing? Additionally, dividend stocks can act as a downside hedge during the stock market's inevitable downturns. They won't take the entirety of the pain associated with a temporary drop away, but they can ease the nerves of shaky investors.
Two high-yielding dividend stocks that could double your money within a decade
But dividend investors are in a constant struggle -- namely, the fight to nab as high a dividend yield as possible while also ensuring it's sustainable. Dividend yields can rise if a company continues to grow its payout, or if it just so happens to pay a high percentage of its profits out to investors. However, yields can also increase simply because a company's share price is falling. If a business model is no longer on solid footing, a high-yield dividend could actually prove to be a trap for income-seeking investors.
What stocks give you the best chance of securing a high-yield dividend and doubling your money the quickest? I'd suggest the following companies with dividend yields of 8% or higher could do the trick.
American Capital Agency
First, I would encourage income investors not to ignore American Capital Agency (AGNC +0.63%) in the mortgage real estate investment trust (mREIT) industry. Mortgage REITs typically borrow money in the short-term and invest in long-term fixed-income securities. Thus they tend to be interest rate-sensitive. A low rate or falling rate environment tends to expand the net interest margins of mREITs, while a rising rate environment tends to shrink their margins. The Federal Reserve's current tightening cycle clearly has investors worried about American Capital Agency.
Image source: Flickr user Mark Moz.
One reason you should ignore this hype is that the logic for an extended monetary tightening doesn't appear to be there. Putting aside the notoriously bad May unemployment report which showed that only 38,000 jobs were created last month, the worst month for job creation since Sept. 2010, the U.S. economy hasn't shown any signs of overheating. First quarter GDP came in at a paltry 0.5%, and inflation has been well below its historical average. Even if the Fed were to hike rates at its June or July Federal Open Market Committee meeting, its opportunities to tighten appear limited. That bodes well for American Capital Agency's margins.
Additionally, American Capital Agency deals almost exclusively in agency-only mortgage-backed securities (MBSs). Agency-only MBSs are protected against default by Fannie Mae or Freddie Mac, which means that American Capital Agency is essentially off the hook for defaults. Yes, agency-only MBSs have lower yields relative to non-MBS assets, but American Capital Agency can counter this by using leverage.
Currently yielding 12.7% and trading nicely below book value, I believe this REIT could double your money in less than a decade. And as an added bonus, you'll receive a monthly dividend with American Capital Agency.
Senior Housing Properties Trust
Sticking within the realm of REITs, I'd encourage income-seeking investors to dig into Senior Housing Properties Trust (SNH +2.61%), which, as the name implies, owns senior living communities, medical office buildings, and wellness centers in the U.S.
The big concern with owning an REIT that specializes in the elderly is the risk that comes with the Medicare and Social Security programs being on shaky footing over the long run. If seniors were to struggle to cover their bills, an REIT like Senior Housing Properties Trust could suffer.
Image source: MyFuture.com via Flickr.
That's the risk, now here's the reward: Between 2010 and 2050, based on data from the U.S. Census Bureau, the elderly population is expected to basically double to nearly 79 million, and the population of the oldest old, defined as persons 85 years old and above, could more than triple. An aging population is a massive opportunity for Senior Housing Properties Trust to grow, both through its senior communities and via its medical office buildings. With demand for senior communities and medical care expected to increase, and the senior patient pool dramatically expanding, Senior Housing Properties Trust's lease pricing power should grow, too.
Senior Housing Properties also has the luxury of jettisoning assets that have appreciated in value for a profit. Doing so helps ensure that it has a diversified and high-occupancy rate portfolio of assets. It also provides steady cash flow that can be used to expand its asset portfolio over the long run.
Sporting a delectable 8.3% yield, this is a stock that could, with dividend reinvestment, double your money in less than a decade.
Editor's Note: This article originally included FLY Leasing, which has suspended its dividend. FLY has been removed from the article. The Fool regrets the error.
