Many investors want to have their investment portfolios generate income, either to provide more investment capital for further stock purchases or to cover regular living expenses. High-yield dividend stocks have gotten extremely popular, but some companies that pay large dividends are riskier than their shareholders realize. The best choice is to focus on high-yield dividend stocks that have margins of safety against future challenges along with solid potential for growth. Enterprise Products Partners (EPD 0.45%), Ford Motor (F 0.90%), and Realty Income (O +0.87%) offer an intriguing combination of these positive factors, making them interesting high-yield choices for dividend investors.
|
Stock |
Current Dividend Yield |
Most Recent Dividend Increase |
|---|---|---|
|
Enterprise Products Partners |
6.4% |
July 2017 |
|
Ford Motor |
5.1% |
January 2015* |
|
Realty Income |
4.3% |
September 2017 |
Data source: Yahoo! Finance. *Excludes special dividends in 2016 and 2017.
Enterprise Products Partners
The energy sector has been down and out in recent years, and that's what makes it so surprising that Enterprise Products Partners has been able to remain strong. The energy infrastructure company specializes in helping exploration and production companies transport the oil and natural gas that they produce to market, and that makes Enterprise less directly exposed to changing prices of energy products. When production volumes fall, Enterprise does get somewhat less revenue from reduced use of its transport capacity, but that hasn't been a lasting problem during the most recent oil price decline.
Enterprise has actually had an amazing capacity to reward dividend investors, with increases every single quarter for the past 13 years. Those increases haven't been huge, but with new projects expected to come on line in the next several years, Enterprise could easily see sharper gains in sales and profits. As that happens, shareholders can expect those improvements to show up in dividend payments. Add to that the potential for a recovery in crude oil, and Enterprise looks even more attractive for the future.
Image source: Enterprise Products Partners.
Ford Motor
The auto industry has also seen extremely strong sales results in recent years, and that's helped allow Ford Motor to offer a solid dividend. The company has tripled its quarterly payout over the past five years, and it has also made a couple of special dividend payments to supplement its current regular dividend. Even with those healthy payouts, Ford has generated plenty of cash flow, leaving it with ample financial resources to reinvest in its business, cover corporate obligations, and pursue other future opportunities.
What Ford faces, however, is the prospect of declining auto sales. Industry watchers have predicted a pullback in sales volume for quite a while, and after posting record numbers in 2016, the auto industry has seen year-over-year declines in monthly sales throughout the current year.
Ford's valuation arguably accounts for expectations for a substantial sales pullback both this year and in the future. The stock currently trades at just eight times forward earnings expectations for the current year, and even if earnings decline in the future, Ford's valuation will still be well below that of the overall market. This margin of safety, combined with the dividend yield, make Ford Motor arguably worth the risk for many investors.
Realty Income
Finally, Realty Income has made a name for itself as a regular payer of monthly dividends. The real estate investment trust makes its money from leasing commercial property to its tenant clients, largely in the retail sector. That business model allows Realty Income to pass through its rental income to shareholders with its monthly dividend payments, and the REIT has been able to boost payouts every quarter for 20 straight years.
Some fear that the decline in shopping mall traffic poses a big risk to Realty Income. Yet the REIT's tenants tend to be companies that sell essential products like groceries and prescription drugs, as well as entertainment operators like movie theaters and fitness centers. These businesses have greater protection against the trends that have hurt malls lately, and dollar store and discount retail clients have actually done well during tough times.
High-yield dividend stocks can be risky, but the right stocks are still worth a closer look. Realty Income, Ford Motor, and Enterprise Products Partners all have a favorable balance of risk and reward that could make them valuable parts of your dividend portfolio for years into the future.
