If you've already built yourself a sizable nest egg, then perhaps it's time to consider shifting your investment focus from growth to income. After all, the whole point of investing in the first place is to let your money create more money for you, allowing you the opportunity to spend your days in leisure while the dividend and interest checks keep rolling in.
With that in mind, we reached out to three of our top contributors and asked them to share a high-yield dividend stock that they think is a great choice for wealthy investors. Read below to see which stocks they selected and their rationale.
Get income and greater diversification
Dan Caplinger: One key to success for wealthy investors is diversifying your investment holdings to ensure you spread out your risk across different types of investments. HCP (NYSE:HCP) offers investors the chance to do exactly that, because the real estate investment trust's exposure to healthcare-oriented properties produces income streams most traditional stocks typically can't match. Currently, HCP offers a yield of nearly 6%, and the prospects for the industry are such that investors can expect healthy income generation well into the future.
One thing HCP investors need to understand is that the REIT is going through a corporate transformation, with plans to spin off its portfolio of HCR ManorCare post-acute skilled nursing facilities. At this point, many expect the spun-off entity to be more conservative in its dividend policies. However, the continuing HCP has incentives to sustain its generous dividend payouts into the future, especially because it was the first REIT to qualify for status as a Dividend Aristocrat because of its track record of more than a quarter-century of rising dividends. By adding real-estate exposure to your portfolio by including shares of HCP, you can broaden your asset base in a way that could also increase the amount of income your portfolio generates for your personal use.
A high yield on a stable cash flow base
Tyler Crowe: One of the things you have to ask yourself when looking at high-yield stocks is whether or not the company can actually maintain that payout over the long term. After all, we've seen loads of companies cut their payouts in recent months because those payouts were not as solid as originally thought. With shares yielding 6.7% today, Holly Energy Partners (NYSE:HEP) looks to be one of those companies that has the legs to keep its payouts going for a while.
Holly Energy Partners is the subsidiary partnership of oil refiner HollyFrontier (NYSE:HFC), which owns most of its transportation and logistics assets. These assets include pipelines and rail terminals that help to supply HollyFrontier's and neighboring companies' refineries. What makes this particular partnership's assets attractive is that 100% of the volumes it transports are under long-term, fixed-fee contracts. Another added benefit is that Holly Energy Partners' management has balanced the need to retain cash for growth and be generous to shareholders. Every quarter since its IPO in 2004, the company has raised its payout.
All of the company's contracts with customers are in place until the end of the decade, and management has been investing rather heavily lately and is slated to bring on new assets that will increase EBITDA by 45% in 2017. That kind of growth coupled with a rather secure payout should make this high-yield investment worth putting on your radar.
Boring, but highly profitable
Brian Feroldi: Iron Mountain (NYSE:IRM) is one of the largest providers of information protection, storage, and records management services in the world. The company operates in more than 41 countries and counts 94% of the Fortune 1000 as customers.
Owning a business that stores and protects sensitive documents may sound incredibly boring (it is), but since the services Iron Mountain offers are always in high demand, the business is very predictable and profitable.
Over the past five years, the company's revenue has grown by a decent 4.4% compounded rate, thanks to a combination of organic growth and acquisitions. Given the worldwide rise of identity theft and hackers, keeping sensitive documents safe is going to become increasingly more important and challenging, which should benefit Iron Mountain in the long run.
A few years back, Iron Mountain decided to reorganize itself as a real estate investment trust, or REIT. That gave the company preferential tax treatment in exchange for distributing 90% or more of its profits to shareholders in the form of dividends. That high payout ratio has made Iron Mountain into a nice income play, and shares are currently yielding 5.2%.
Looking ahead, management believes emerging markets offer up a tremendous growth opportunity. When combined with continued acquisition activity, the company should provide investors with steady revenue growth and healthy dividend increase. Next year, the company has already announced its intentions to raise its dividend by a strong 13%, so Iron Mountain is a great stock for yield-hungry investors to consider owning.
Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.
Dan Caplinger has no position in any stocks mentioned. Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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.