Truly great income investments combine generous payouts with decades and decades of regular dividend boosts. High-yield stocks with the staying power to deliver the goods for a lifetime are a rare find, so we asked three of The Motley Fool's top investors to share their best ideas in that vein.
Read on to see why they named Qualcomm (QCOM 2.63%), Enterprise Products Partners (EPD +0.50%), and HCP Inc. (HCP 1.19%) as their favorite dividend payers to hold for a lifetime.
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Health and wealth can go hand in hand for income investors
Sean Williams (HCP Inc.): When I think of high-yield dividend stocks that you can buy and simply forget about for years, healthcare-based real estate investment trust (REIT) HCP Inc. comes to mind.
HCP is a company that acquires healthcare assets such as life science buildings, senior housing facilities, and medical offices, and then leases those assets to companies for an extended period of time. Its business model, while capital intensive, is pure genius. Over the next two decades, the retirement of baby boomers means an average of more than 10,000 people per day will reach age 65. Considering that people are living longer than ever, the need for maintenance care is only expected to grow.
This means demand for more drug development, more senior care facilities (both assisted living and independent living), and more medical office buildings to house general and specialized physicians. Healthcare boils down to being a numbers game, and HCP is certainly on the right side of these figures, so it should continue to possess strong rental pricing power and high occupancy rates.
Following the spinoff of HCR ManorCare last year and the sale of 64 triple-net assets leased to Brookdale Senior Living in March, HCP is also a considerably leaner company. Its weighted average interest rate is down about 210 basis points since 2010. Meanwhile, the weighted average maturity on its debt is up to a projected 6.2 years from 4.5 years over that same time frame. HCP has plenty of funds from operations to cover its debt, but it's working to become leaner by jettisoning slower-growth assets, which is a smart move.
Finally, HCP's focus on independent-living facilities appears to really be paying off. Roughly 65% of the supply growth over the next 12 months in senior housing is coming from the assisted-living side of the equation. Since 65% of HCP's senior housing assets target independent living, it's not going to be hurt by a glut in new supply anywhere near the extent of its peers.
HCP's current 4.6% yield trounces the S&P 500 and would allow investors to double their investment on the yield alone about every 15.5 years. That's the sort of stock dividend investors can buy and hold forever.
A high-yield chip shot for the ages
Anders Bylund (Qualcomm): Semiconductor giant Qualcomm has made a mint in the smartphone era, supplying core processors and wireless connectivity chips to the world's largest phone brands. These products will always have a role to play as the technology market evolves, but Qualcomm is ready to take the next step. When the currently pending buyout of NXP Semiconductors (NXPI 2.65%) closes, Qualcomm will become an instant leader in automotive computing and chips for secure data exchange.
This stock also comes with a rock-solid dividend policy. Since starting its dividend policy in 2003, Qualcomm has boosted its payouts without fail every single year. That includes quadrupling the annual dividend payout in the last 10 years, and Qualcomm's dividend yield now sits at a historically high 3.9%.
Now, one driver of Qualcomm's great current dividend yield is a stalled stock chart. Qualcomm shares have fallen 32% lower in the last three years, and low share prices lead to higher dividend yields. The company is accused of anticompetitive practices in China, South Korea, and Europe, and it's hard to say what final cost of these investigations might be. If nothing else, the dark legal clouds over Qualcomm may force the company to make some concessions before closing the transformative NXP deal.
Even so, Qualcomm has the means and the wherewithal to move on with confidence when the legal issues are resolved. As one of the largest semiconductor companies on the planet, Qualcomm is in no danger of going bankrupt or even losing the NXP opportunity. Investors can take advantage of Qualcomm's bargain-basement share prices -- the stock trades at just 14 times forward earnings -- to lock in today's juicy dividend yields for the long haul.
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A pipeline stock for the long haul
Matt DiLallo (Enterprise Products Partners): Energy infrastructure giant Enterprise Products Partners is the epitome of a buy-to-hold investment. The company owns and operates a vast portfolio of pipelines, processing plants, storage complexes, and export facilities from which it collects a steady stream of cash flow by providing services to customers supported by long-term contracts. In fact, 93% of the company's cash flow comes from these stable fee-based contracts.
Because of the predictability of those contracts, Enterprise typically distributes about 75% to 80% of its cash flow to investors each year, which enables the company to offer a high yield that's currently 6.2%. The company further supports that payout with one of the best balance sheets in the pipeline sector. Meanwhile, it reinvests the remaining cash flow along with the prudent use of debt and equity capital to finance the construction and acquisition of new fee-based assets.
In fact, Enterprise currently has $8.6 billion of projects under construction that should enter service through 2019. The incremental cash flow from those projects will allow the company to continue increasing its distribution, which is something it has done for the past 51 consecutive quarters and 60 times since going public nearly two decades ago.
Meanwhile, there's plenty of growth left in the tank past 2019. That's because while renewables grab all the headlines, the current forecast for oil demand is that it should continue growing at least until 2040.
This demand growth will require an estimated $26 billion per year in midstream energy infrastructure investment in North America alone through 2035, which should provide Enterprise Products Partners with plenty of opportunities to expand in the decades ahead. That outlook, when combined with Enterprise's sound financials, makes it a great investment to hold for the long term.
