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3 Stocks to Buy With Dividends Yielding More Than 5%

By Matthew Frankel, CFP® - Jul 7, 2017 at 8:23AM

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These stocks pay safe dividends that are significantly above the market average.

The average dividend stock on the S&P 500 pays a little over 2%, which understandably doesn't get many income investors too excited. However, there are some stocks that pay much higher dividends that are safe and have lots of long-term growth potential. Here are three examples, all of which yield more than 5% as of this writing.



Recent Share Price

Dividend Yield





Store Capital Corp.




Senior Housing Properties Trust




Data Source: TD Ameritrade and author's own calculations. Share prices and dividend yields as of 7/1/2017.

Steady income and room to grow

Verizon (VZ 0.36%) is an excellent choice for investors who need a steady, reliable income stream, and is actually the highest-yielding stock in the Dow Jones Industrial Average. The 5.2% dividend yield paid by the telecom giant is backed by reliable cash flow generated by the company's subscribers.

Passing hundred dollar bills between two people.

Image source: Getty Images.

The company's size and financial flexibility should give it a durable competitive advantage in developing new technologies (such as its anticipated 5G network) and pursuing attractive value-adding acquisition opportunities that come up, which it has certainly shown its willingness to do in recent years.

Verizon's dividend is not only generous, but it is also safe. The payout represents just 62% of 2017's expected earnings, so the company has plenty of cushion to absorb any earnings weakness, and also has plenty of cash to use for future dividend increases. Finally, with a P/E ratio of just 12 times 2017's expected earnings, Verizon looks like quite a bargain at the current share price.

A new addition to Warren Buffett's portfolio

Net-lease REIT Store Capital (STOR 1.20%) recently announced that Berkshire Hathaway (BRK.A 0.62%) (BRK.B 0.80%), the conglomerate led by Warren Buffett, had acquired a 9.8% stake in the company.

In a nutshell, "net-lease" real estate means that tenants sign leases that require them to pay property taxes, building insurance, and certain maintenance expenses. These leases typically have long initial terms and have annual rent increases, or escalators, built in. The benefits are a steady, predictable income stream, as well as minimal vacancy risk. In fact, 99.5% of Store Capital's properties are occupied as of the first quarter of 2017.

Store Capital owns 1,750 properties, the majority of which are leased to retail businesses, with a particular emphasis on service-based businesses like movie theaters and restaurants. And the business has grown rapidly, at an average rate of 76 new properties per quarter. Thanks to the perceived weakness in the retail industry, which doesn't affect most of Store's tenants, the stock is down about 20% over the past year, even after the "Buffett rally," which has created an interesting opportunity for long-term investors.

A safe dividend and lots of potential

Healthcare real estate could grow rapidly over the coming decades, especially senior-specific property types, as the Baby Boomer generation retires and the 65-and-older population in the U.S. roughly doubles by 2050, and older age groups are expected to grow even faster. Senior Housing Properties Trust (DHC 0.00%) could be a smart way to invest in this growth, and generate a fantastic income stream along the way.

Projected growth of 85+ population group.

Image source: Senior Housing Properties Trust investor presentation.

Despite the name, just over half of Senior Housing Properties Trust's portfolio of 434 properties is made up of senior housing, with medical offices making up most of the rest. The company's tenants derive 97% of their revenue from stable private-pay revenue sources, one of the highest ratios in the healthcare REIT industry.

Many readers may think that Senior Housing Properties Trust's 7.6% dividend yield may sound too good to be true. However, it represents just 83% of the company's FFO, which isn't high for a REIT, so there is no reason to worry about the safety of the income stream. And as I recently wrote, the company represents a pretty compelling bargain at the current price.

Matthew Frankel owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Verizon Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$44.84 (0.36%) $0.16
Diversified Healthcare Trust Stock Quote
Diversified Healthcare Trust
$1.84 (0.00%) $0.00
STORE Capital Corporation Stock Quote
STORE Capital Corporation
$28.66 (1.20%) $0.34
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$442,800.00 (0.62%) $2,742.25
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$295.11 (0.80%) $2.34

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

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