Big yields are not the only ingredient in a successful dividend investment, but they're certainly a great start.
So we asked a handful of your fellow investors here at The Motley Fool to share a few great dividend stocks with you. To get the discussion going, we set the baseline yield at 3%.
People will see their doctors in both good and bad times
Chuck Saletta (Physicians Realty Trust): One of the most important parts of investing is determining whether a company you're considering has staying power. As a company that specializes in renting real estate to medical facilities and medical professionals, Physicians Realty Trust benefits from the fact that the medical industry is generally recession resistant. People are often willing to see their doctors and get needed treatments even if they're otherwise cutting back.
While not an absolute guarantee of success, that should buffer Physicians Realty Trust from the worst swings affecting the rental real estate market and give it a decent shot at legitimate staying power. In addition, Physicans Realty Trust is structured as a Real Estate Investment Trust (REIT) and thus must pay out at least 90% of its earnings as a dividend. That gives investors decent reason to believe that as long as the business remains profitable, it will offer a decently high dividend.
With a current yield that measures around 5.5%, is covered by operating cash flow, and has actually slightly increased within the past year, Physicians Realty Trust has rewarded owners with cash for their investment. Since earnings are expected to grow at around a 9.7% annualized clip over the next five or so years, investors have the potential to see that dividend continue and perhaps even increase a bit, as well.
The best dividend payer you never heard of
Anders Bylund (Uniti Group): This REIT is no household name, even among dividend enthusiasts. That's part of Uniti's value-building charm, though -- the company is not widely understood and arguably is undervalued as a result.
Uniti was spun out from regional telecom Windstream Communications (NASDAQ:WIN) in 2015. The idea was to separate Windstream's struggling service sales from its rock-solid network infrastructure. At first, Windstream was Uniti's only customer. Through a combination of strategic network buyouts and aggressive marketing efforts, the company has now expanded its client list to more than 16,000 names. Windstream still represents roughly 70% of Uniti's annual sales, but the two companies aren't absolutely joined at the hip anymore.
The Windstream connection is part of Uniti's deep-discount share prices, of course. Investors fear that Uniti's largest customer might go bankrupt at any moment, and that's a perfectly valid concern. But I think that the company should have no problem finding ways to replace Windstream's missing lease payments, either by signing a long-term deal with the buyer of that bankrupt client's customer relationships or by marketing the unused network fibers to other telecoms.
Don't forget that Uniti is profitable, and its top-line revenue is growing, with dividend payments backed by strong cash flow -- the exact opposite of Windstream's troubled business metrics. So the fears of Windstream dragging Uniti down into an early grave seem overdone.
And you know what happens to undervalued dividend stocks, right? Their dividend yields skyrocket as share prices dwindle, and you can lock in those generous yields by buying in at an appropriate time. At the moment, share prices have fallen 39% lower over the last 52 weeks to create a cash-machine yield of 14.7%.
A classic income play...and a takeover target
Leo Sun (Philip Morris International): Back in 2008, tobacco giant Altria (NYSE:MO) spun off its international business as Philip Morris International. The idea was for Altria to streamline its domestic business to counter declining smoking rates and higher taxes and for PMI to flourish in higher-growth overseas markets.
This strategy paid off for PMI over the years, even as fluctuating exchange rates caused volatility in its reported earnings. On the surface, PMI's growth looks anemic. Between fiscal 2008 and 2016, PMI's annual operating revenue (excluding excise taxes) rose just 4% from $25.7 billion to $26.7 billion. But on the bottom line, its diluted earnings rose 35% -- thanks to cost-cutting measures, price hikes, and buybacks during favorable currency conditions.
PMI's reported growth was under pressure over the past few years, due to a strong dollar gobbling up its overseas gains. But with the dollar weakening, that headwind should become a tailwind, and analysts expect its revenue and earnings to improve 7% and 6%, respectively, this year.
PMI currently pays a forward dividend yield of 3.9%, which is supported by a payout ratio of 92%. It has also hiked that payout every year since its split with Altria. The stock isn't cheap at 21 times forward earnings, but many analysts believe that Altria could acquire PMI to counter British American Tobacco's (NYSE:BTI) takeover of Reynolds American. Therefore, PMI isn't just a solid income play; it's a potential takeover target.