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3 Top Dividend Stocks With Yields Over 5%

By Keith Noonan, Demitri Kalogeropoulos, and Timothy Green - Updated Feb 2, 2018 at 2:52PM

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These three high-yield stocks could help turn your portfolio into an income-generating machine.

Big dividend yields typically come with heightened risk profiles, but there are some stocks that offer an appealing combination of valuation, growth prospects, and returned income. We asked three Motley Fool investors to highlight their pick for a high-yield stock that's worth holding for the long haul. Read on to see why they identified Cedar Fair (FUN 0.11%), DineEquity (DIN -2.87%), and AT&T (T -0.82%) as some of the top stocks yielding more than 5% on the market today.

Five stacks of coins increasing in size from left to right, with a letter on top of each stack spelling out yield.

Image source: Getty Images.

Dividend investing can be fun

Demitri Kalogeropoulos (Cedar Fair): Annually, Cedar Fair entertains about 24 million guests through its network of amusement and water parks that span the U.S. and parts of Canada. The company is about to notch its eighth straight year of record results in 2017 thanks to a modest uptick both in raw attendance numbers and in average spending per visitor.

Cedar Fair is an attractive dividend stock not only because it pays an over 5% yield right now; its earnings are relatively stable, too, which is rare for an entertainment-focused enterprise like this. Adjusted earnings fell by a modest 11% in fiscal 2009 during the worst of the financial crisis, before returning right back to double-digit growth in the following year. The same pattern held in the prior recession in 2001.

Management's plan calls for 4% profit growth annually from here, with dividend disbursements tracking higher at roughly the same rate. That success will depend on the company's ability to keep improving the guest experience through initiatives like adding rides and attractions, bulking up food and merchandising options, and expanding its parks, over time, into the hundreds of undeveloped acres of real estate that Cedar Fair owns today. It's a simple strategy, but one that tends to deliver healthy returns for investors through a wide range of economic conditions.

A high-yield restaurant stock

Tim Green (DineEquity): Stocks that yield over 5% usually come with some downsides. DineEquity, the company behind the Applebee's and IHOP franchises, is no exception. The stock yields 7%, but both of the company's brands are suffering from sales declines that could eventually put pressure on that dividend.

During the first nine months of 2017, domestic systemwide comparable sales were down 2.5% at IHOP and 7.3% at Applebee's. Adjusted net income, which excluded a large goodwill impairment charge, slumped 28% year over year. The dividend was still covered by earnings, but the cushion got smaller. DineEquity produced $3.42 per share of adjusted earnings in this nine-month period, compared to $2.91 per share of dividend payments.

DineEquity clearly has some work to do to return its two brands to growth. The dividend isn't in immediate danger, but earnings can't fall by much more before that's no longer the case. The company appointed a new chief marketing officer on Jan. 30, and it has been rolling out promotional items like $1 margaritas in an effort to boost traffic. Investors willing to bet that these initiatives will pay off can get paid 7% to wait.

A telecom leader ready for the next steps

Keith Noonan (AT&T): With negative pressures facing AT&T's wireless and satellite television businesses, and the company's attempt to purchase Time Warner (TWX) at least temporarily stymied, it's not hard to see why the stock has underperformed the broader market over the last year.

^SPX Chart

^SPX data by YCharts.

While those risk factors and setbacks are something the company will still contend with going forward, there's actually a lot to like about AT&T stock.

The telecom giant is set to be a leader in 5G technology -- the next generation of wireless network and a leap forward that could open up major long-term opportunities. 5G will not only dramatically increase speeds for wireless subscribers, it will play a key role in connecting Internet of Things devices, spreading 4K video, mixed reality technology, and other applications. That's a development that should help the company reestablish its competitive over value-priced services from companies like Sprint and T-Mobile and establish a first-mover advantage in network services and platforms for a new wave of connected devices. Rolling out the new network technology will be capital intensive, so it's reasonable that the company's valuation does not reflect expectations for fast earnings growth in the near term, but leadership in 5G will likely produce major advantages and help the company maintain a forefront position as the telecom business enters a new phase. 

With shares valued at just 13 times forward earnings estimates, sturdy business prospects, and one of the best returned-income profiles around, AT&T is standout option for investors looking for dividend stocks. Shares yield roughly 5.4% at today's prices, and a 33-year streak of annual payout increases suggests that the company's dividend will continue to grow with time. 

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$20.61 (-0.82%) $0.17
Cedar Fair, L.P. Stock Quote
Cedar Fair, L.P.
$43.51 (0.11%) $0.05
DineEquity, Inc. Stock Quote
DineEquity, Inc.
$66.01 (-2.87%) $-1.95
Time Warner Inc. Stock Quote
Time Warner Inc.

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

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