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3 High-Yield Stocks Still Worth Buying

By Keith Noonan, Chuck Saletta, and Rich Duprey - Updated Nov 16, 2017 at 5:48PM

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These stocks have what it takes to be long-term winners.

Building a portfolio of income-generating stocks that are worthy of being held for the long term is one of the best ways to create wealth. 

With that goal in mind, we asked three of The Motley Fool's top contributing investors to pick a high-yield stock backed by an underlying business that's built to last. Here's why Omega Healthcare Investors (OHI 2.13%), GEO Group (GEO 1.82%), and China Mobile (CHL) made the list.

A man hopping on a series of graph arrows pointing diagonally into the sky.

Image source: Getty Images.

A key player in a growing industry

Chuck Saletta (Omega Healthcare Investors): There's an old saying that says "demographics is destiny." To the extent that's true, then two incredibly important trends bode well for Omega Healthcare Investors. First, the U.S. population is aging, with the number of Americans over age 65 expected to double over the next couple of decades. Second, domestic birthrates continue to decline.

That combination means the U.S. will have more people needing help getting through life as they age, with fewer family resources available to help provide those services for those that need them. As an equity real estate investment trust (REIT) that focuses on skilled nursing care and assisted-living facilities, Omega Healthcare Investors provides the facilities that enable professional care for the aging. That positions the company well to grow along with those demographic trends.

While you might not expect an industry with such apparent growth ahead of it to sport many companies with a high dividend yield, Omega Healthcare Investors carries with it an annualized dividend yield around 9%. Even better, that dividend has been generally increasing over time and is still covered by the company's operating cash flows.

As a REIT, Omega Healthcare Investors must pay out at least 90% of its earnings as dividends, which means its dividend will probably always be high as long as it remains profitable. The upside of that high yield is a strong current income for shareholders. The downside is that if its customers -- operators of those nursing care facilities -- get into financial trouble, it doesn't have much buffer to protect its ability to keep up its trend of strong and growing dividends.

Lock this one up now

Rich Duprey (GEO Group): Private-prison operator GEO Group continues to look attractive even though its stock is down 17% over the past six months. In fact, it looks more attractive as a result.

Since Donald Trump was elected president, GEO Group and industry peer Core Civic (CXW 0.27%) have been on the upswing because of a belief the Republican would maintain the use of private facilities rather than turning to government-operated ones. Before the election, the Justice Department had been looking to end the use of private contractors, but we haven't heard a thing about it since. Moreover, with Trump's promise to crack down on illegal immigration, the need for additional facilities grows.

Private-prison operators do most of their business not with the Federal Bureau of Prisons, but rather the Department of Homeland Security (DHS). In fact, federal government-run facilities account for only 11% of DHS's Immigration and Customs Enforcement (ICE) detention centers; private facilities like the ones GEO Group and Core Civic operate represent the vast majority of DHS's detention beds. Earlier this year, GEO Group won a new contract from ICE to build and operate a new company-owned 1,000-bed detention facility.

Because GEO Group is structured as a REIT, it gives the prison operator clear tax advantages in exchange for paying out most of its profits as a dividend. It's currently paying out a greater than 7% yield. Don't expect this to be a high-growth stock, but rather a steady performer, at least while the current administration is in power.

China's wireless juggernaut

Keith Noonan (China Mobile): If you're looking for dependable dividend growth, you probably won't get it with China Mobile. Not counting a recently distributed special dividend, the Chinese telecom giant's payout has trended down over the past five years, but the stock still deserves attention from income- and value-focused investors.

Shares currently sport a roughly 3.6% yield, and the company's seemingly unshakable market position puts it in good position to deliver capital appreciation and income generation over the long term. China Mobile counts more than 874 million subscribers, and its close relationship with the Chinese government means the company is subject to limited competitive pressures. 

As China's premier wireless provider, the company is also in position to be one of the biggest beneficiaries of the Internet of Things and next-generation connectivity technologies. China Mobile is already building an entrenched position in the fast-growing connected-home space thanks to its set-top-box program, and it stands as the Middle Kingdom's clear wireless service leader in categories such as smart cities and connected cars. 

With shares trading at just 12 times forward earnings estimates, a fortified position in its corner of the wireless market, and a hefty dividend yield, China Mobile looks like a smart buy for investors who are seeking income and international exposure.

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Stocks Mentioned

China Mobile Limited Stock Quote
China Mobile Limited
The GEO Group, Inc. Stock Quote
The GEO Group, Inc.
$6.72 (1.82%) $0.12
Omega Healthcare Investors, Inc. Stock Quote
Omega Healthcare Investors, Inc.
$28.79 (2.13%) $0.60
CoreCivic, Inc. Stock Quote
CoreCivic, Inc.
$11.14 (0.27%) $0.03

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

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