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6 Incredibly Cheap High-Yield Dividend Stocks

By Jay Jenkins – Updated Dec 15, 2016 at 1:31PM

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When huge yields meet cheap prices, you get these six stocks.


Image source: Getty Images.

Buying a stock with an impressive dividend yield doesn't have to cost you an arm and a leg. These six stocks, for example, offer investors big dividend checks without breaking the bank. Keep in mind though, that high dividend yields are often accompanied by high risk. Make sure you accurately judge your tolerance for the latter before buying.

Let's start with the REITs

REITs, or real estate investment trusts, are a special type of company that receives an advantaged tax treatment under I.R.S. rules. A REIT must invest in real estate, or real-estate related assets like mortgages, and it must maintain a dividend payout ratio of at least 90%.

Additionally, at least 75% of a REIT's gross income must come from real estate. If the REIT abides by these rules, plus a handful of other administrative requirements, the company does not have to pay corporate taxes. As a result of that special tax treatment, REITs generally have very attractive dividend yields.

Starwood Property Trust (STWD -3.19%) is a great example. The company primarily invests in commercial real estate debt and debt securities in the U.S. and Europe. The company's investments are diversified among the various sectors of commercial real estate, making it attractive for long-term investors seeking broad exposure to commercial real estate.

Similarly diversified, Lexington Realty Trust (LXP -2.52%) typically owns the properties in its portfolio, rather than investing in debt like Starwood. Colony Capital Inc. (NYSE: CLNY) pursues a strategy somewhere in the middle, balancing its investments between equity and debt in its North American and European properties.

All three are diversified among the various commercial real-estate sectors, with exposure ranging from offices to hospitality to retail to residential and more.

REIT Stock

Dividend Yield

Price to Earnings Ratio (TTM)

Starwood Property Trust

9.31%

13.84x

Lexington Realty Trust

7.2%

18.53x

Colony Capital Inc.

8.73%

19.49x

Data source: DripInvesting.org.

Big yields in these big oil MLPs

An MLP is an entity structured as a master limited partnership. These companies offer the tax benefits of a limited partnership with the liquidity benefits of a publicly traded equity.

The entity has two partner roles, limited partners and general partners. The limited partners provide the capital and receive periodic distributions from earnings, and the general partner operates the company for a fee. To meet the tax requirements of being an MLP, the company must derive 90% or more of its cash flow from real estate, natural resources, or commodities. 

In today's market, MLP's that serve the oil and gas industry are particularly cheap, driven by the past 18 months of low oil and gas commodity prices. Investors have fled these stocks on fears that lower production could drive down demand for the infrastructure services these companies provide.

That's resulted in a slew of cheap stocks with mega-sized dividends -- stocks like Golar LNG Partners LP (GMLP), an owner and operator of storage units and liquefied natural gas carriers. The company is paid from contracts with a variety of sovereign producers that range from Brazil to Kuwait to Indonesia. Golar LNG Partners' fleet includes six floating-storage regasification units, and four liquefied natural-gas carriers.

Or consider Energy Transfer Equity LP (ET -2.79%), owner of tens of thousands of miles of pipelines in the U.S., plus storage facilities, processing and treatment plants, and more. Like a toll collector on a highway, as long as there are petroleum products moving along the pipelines, Energy Transfer Equity will make money, and pay big dividends.

The opportunities are not just on the commercial side, either. AmeriGas Partners LP (APU) distributes propane and propane-related equipment to more than 2 million customers in the U.S. AmeriGas's products are used for cooking, heating, agriculture, fuel, and many other uses. AmeriGas's P/E ratio may look high at first glance, but it's actually 10% below the average in its niche.

MLP Stock

Dividend Yield

Price to Earnings Ratio (TTM)

Golar LNG Partners LP

13.58%

5.4x

Energy Transfer Equity LP

9%

10.9x

AmeriGas Partners LP

8.2%

19.8x

Data source: DripInvesting.org

Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Starwood Property Trust Stock Quote
Starwood Property Trust
STWD
$20.34 (-3.19%) $0.67
Energy Transfer Stock Quote
Energy Transfer
ET
$12.18 (-2.79%) $0.35
LXP Industrial Trust Stock Quote
LXP Industrial Trust
LXP
$10.45 (-2.52%) $0.27
AmeriGas Partners Stock Quote
AmeriGas Partners
APU
Golar LNG Partners Partnership Stock Quote
Golar LNG Partners Partnership
GMLP

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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