One of the best ways to consistently generate wealth over the long term is by purchasing strong high-yield dividend stocks. But finding those stocks isn't always easy. So it can pay to keep an eye on what the smartest investors are doing -- whether that means striving to understand an unusual situation or studying the portfolios of some of the world's most famous investors.
To that end, we asked three top Motley Fool investors to each pick a high-yield stock that (other) smart investors just can't get enough of. Read on to learn why they chose Cedar Fair (FUN -0.25%), Kraft Heinz (KHC -2.85%), and Alliance Resource Partners (ARLP -0.46%).
Dividends have never been so much fun
Steve Symington (Cedar Fair): As the United States' third-largest amusement park operator and a master limited partnership (MLP) with an annual dividend yield of 5.4% as of this writing, Cedar Fair is a compelling bet for smart investors seeking steady income.
But it's also worth noting that the last few months haven't been particularly kind to Cedar Fair; shares are down more than 12% from their 52-week high (set in early May) after unfavorable early season weather resulted in soft attendance at several of Cedar Fair's largest parks last quarter. However, Cedar Fair's core business remains solid, and Chief Operating Officer Richard Zimmerman was quick to remind investors of their "long-held belief that inconsistencies and weather will average out over the course of a full operating season."
Furthermore, with around 40% of its anticipated attendance for 2017 still ahead of it as of last quarter's call, including strong outlooks for its Halloween and recently expanded WinterFest events, Cedar Fair insists that it's still on track for a record year. For investors willing to buy and hold while they look past Cedar Fair's temporary headwinds, I think the stock should easily beat the market.
Serving up a high yield with world-class food brands
Sean O'Reilly (Kraft Heinz): Investors rarely have the opportunity to buy a high-yield dividend stock that the world's smartest investors believe in as well. This is precisely the situation presented by shares of Kraft Heinz. Not only does it have the most intelligent investor around, Warren Buffett, as a 26.73% owner but also private equity magnate and billionaire Jorge Lemann as an investor. Kraft Heinz was created when Lemann's company, 3G Capital, merged Kraft and Heinz Ketchup with Buffett's backing.
Today, the company is a $93 billion consumer foods juggernaut. Its food brands include Heinz ketchup, Kraft, Oscar Meyer, Planters, Velveeta, Maxwell House coffee, and much more. It currently ranks as the fifth-largest food and beverage company in the world, with eight Brands each bringing in over $1 billion in sales.
Investors looking for yield will love the company's 3.2% dividend yield. This juicy payout is likely one of the many reasons both Buffett and Lemann have stuck around since its 2015 IPO. Lemann and his team, long recognized as some of the savviest business operators in the world, continue to drive efficiency (and profits). Net sales in Kraft Heinz's second quarter ended July 1, 2017, were 6.7 billion, down 1.7% year over year primarily due to currency fluctuations. Fortunately, thanks to a constant drive to get better at what they do, net income surged to 1.2 billion ($0.94 per share) up 50.5% over last year's Q2 $770 million profit.
With a more than 3% yield and two smart investors on board, Kraft Heinz is a high-yield stock foolish investors should buy today.
This hated industry houses a very attractive income stock yielding nearly 10%
Sean Williams (Alliance Resource Partners): Though high-yield dividend stocks can occasionally be a trap for income-seeking investors, I believe that smart investors are overlooking temporary weakness in coal giant Alliance Resource Partners and gearing up for a profitable long-term hold.
There's no question that the coal market is facing challenges. Lower natural gas prices and cheaper access to alternative energy sources like solar and wind have made it easier for utilities to switch away from coal as an electricity source. In just a few years, coal's share of the electricity market in the U.S. dipped from 39% to 31%. Tack on an oversupply issue that's pressured coal prices and it's easy to see why investors have been so discouraged by the industry.
However, Alliance Resource Partners is a different sort of beast. Arguably, no coal producer does a better job of locking in production years in advance than Alliance Resource. As of its second-quarter report, it had 38 million tons contracted for delivery this year, along with 20.1 million tons in 2018, 11 million tons in 2019, and 6.9 million tons in 2020. The more forward-looking this company is, the less reliant it is on wholesale pricing. This ultimately means predictable cash flow that shareholders can appreciate.
Relatively to its peers, this is also a company with a reasonably low level of debt. The company's debt to equity of just 48% is well below its peers, and the $521 million in net debt it possesses is less than the annual EBITDA (earnings before interest, taxes, depreciation, and amortization) that it expects to generate this year. In other words, it has enough financial flexibility to make moves that its peers simply can't right now.
Sporting what looks to be a sustainable 9.7% yield and a forward P/E of less than 10, this high-yield stock may be perfect for smart investors.