With a yield of 5.1%, telecommunications giant AT&T Inc. (NYSE:T) is pretty attractive to many investors looking for a dependable way to get a steady check. Ma Bell has also raised the dividend for 34 straight years, something dividend investors have come to love. However, AT&T is on track to see revenue fall this year, and earnings are expected to increase a paltry 3%. Expectations for 2018 aren't any better as pay TV and mobile subscriber numbers continue to decline.
So before you buy shares of AT&T based on its high yield and history of dividend growth, our contributing investors think you should give real estate giant Welltower Inc. (NYSE:WELL), amusement park operator Cedar Fair, L.P. (NYSE:FUN), and solar power producer 8Point3 Energy Partners LP (NASDAQ:CAFD) a closer look. All three pay bigger dividends right now, while also offering a combination of dividend and stock price growth that AT&T probably can't match.
A healthcare property owner getting ready for a megatrend
Jason Hall (Welltower Inc.): Already one of the biggest healthcare real estate owners in the world, Welltower has spent much of the past couple of years selling off assets, something that's affected its operating cash flows and led to concerns it may have to cut the dividend, which yields about 5.2% at recent prices. In actuality, Welltower's asset sell-off is a strategy of taking a step back in order to start making big strides forward, based on a very big need the company expects to play a major role in filling.
The first baby boomers turned 65 in 2011, and this most populous generation in American history has about 3 million of its members reaching retirement age every year. That's going to continue until 2029, and it will result in a doubling of the retirement population in the U.S. And with Americans living longer than ever before -- and medical advances likely to extend life expectancies even more in coming decades -- the number of people over 80 is on track to more than double in less than 20 years.
It's early in the company's efforts, but there's evidence that the strategy is starting to pay off. Funds from operations -- a better measure of profitability for real estate investment trusts than GAAP earnings -- fell about 5% from last year when Welltower owned more properties, but they came in ahead of expectations on strong results from its senior housing portfolio. In addition to aiming squarely at growing its senior housing segment, where so much demand will be centered in coming decades, Welltower has also reduced its debt by more than $1 billion over the past year, improving its financial flexibility to pursue its growth strategy.
There will be more asset sales in the near term that could make cash flows lumpy and some investors jittery. But looking at the long-term need for senior housing, Welltower investors are on track to see the dividend grow substantially in the future -- even from today's 5%-plus yield.
Fun for everyone
Rich Duprey (Cedar Fair): There seem to be few companies around that offer good growth possibilities while also paying investors a dividend that sports a mouthwatering yield, all with reasonable risk. Cedar Fair, however, is just such a stock.
The company runs 11 theme parks including its flagship Knott's Berry Farm, Cedar Point, and Kings Dominion. Attendance at its parks has been on the upswing, with same-park traffic rising 1% in the third quarter even as there was a 1% increase in average ticket prices. And even though the current quarter is typically among its slowest, Cedar Fair is working to make that tailing off in attendance less pronounced.
First, it's increasing the winter attraction at its park, expanding the number of Winterfest events from two parks to five while also adding indoor attractions, such as the new indoor sports complex at Cedar Point.
Despite these numerous growth possibilities, Cedar Fair trades at a reasonable 25 times trailing earnings and 20 times next year's estimates, and its stock only trades some 5% higher than where it started 2017. It also pays a dividend of $3.56 per share that yields 5.3% annually, and just increased the payout by 4%.
For investors wanting to ring up greater growth than AT&T while having the time of their lives, Cedar Fair is a stock worth checking out.
A rock-solid solar dividend
Travis Hoium (8point3 Energy Partners): Stocks with dividend yields of 7.6% are usually high-risk companies with dividends that investors don't think will last. But 8point3 Energy Partners has contracted cash flows for more than 20 years, meaning its high yield is pretty darn secure.
8point3 Energy Partners is a yieldco that owns 946 MW of solar energy assets, which are backed by power purchase agreements that average 19.4 years in duration. The longest extends 26.3 years from the end of last quarter. Most off-takers are investment-grade utilities, resulting in an extremely safe set of cash flows.
The market has left 8point3 Energy Partners with such a high dividend yield because the company doesn't have a lot of growth options today. Sponsors First Solar and SunPower are both reducing their project development businesses, leaving 8point3 Energy Partners without a pipeline of projects to acquire that could help grow the dividend. But the dividend yield alone is enough to make the stock a good value for investors.
On top of 8point3 Energy Partners' dividend and operating value, First Solar and SunPower are attempting to sell their stakes in the yieldco, which could result in a buyout at a premium or a new sponsor that could stabilize the yieldco and grow the dividend. Either way, there's a lot of upside for the stock.
Jason Hall owns shares of 8point3 Energy Partners, First Solar, and SunPower. Rich Duprey has no position in any of the stocks mentioned. Travis Hoium owns shares of 8point3 Energy Partners, AT&T, First Solar, and SunPower. The Motley Fool recommends Cedar Fair, First Solar, and Welltower. The Motley Fool has a disclosure policy.