Buying and holding high-yield dividend stocks is one of the best ways to predictably generate wealth over long periods of time. But finding the best stocks that the market has to offer is easier said than done -- especially if investors want to ensure those dividends are sustainable.
To that end, it helps to find stocks with underlying businesses that dominate their niche. So we asked three leading Motley Fool investors to each pick a stock that has a virtual monopoly of its respective industry. Read on to see why they chose Anheuser-Busch InBev (NYSE:BUD), Mobile TeleSystems (NYSE:MBT), and Green Plains Partners LP (NASDAQ:GPP).
Cheers to industry dominance
Steve Symington (Anheuser-Busch InBev): Given the combination of antitrust regulators and the rise of craft breweries all over the world, no single company can claim a true monopoly in the beer industry. But after its $100 billion megamerger with SABMiller in late 2016, Anheuser-Busch InBev is as close as they come.
To be sure, the brewing industry titan has operations in over 50 countries and a massive portfolio of approximately 400 beer brands, including seven of the world's most popular beers -- think Budweiser, Stellar Artois, and Corona. As such, AB InBev controls around one-third of the global beer market, including a roughly 45% share in the lucrative U.S. market.
That doesn't mean AB InBev is immune to the occasional "bad" showing. Last quarter, poor weather in many parts of the U.S. caused the company's total volumes to decline a modest 1.2%. But its stateside underperformance would have felt much more pronounced had it not been for strong shipments in countries such as Mexico, Argentina, and Africa. And in the meantime, investors can take solace knowing they're collecting its generous dividend, which yields around 3.9% annually as of this writing.
This wireless juggernaut is sporting a nearly 8% yield
Sean Williams (Mobile TeleSystems): Though it's really hard to find companies that have a high-yield dividend and can claim virtual monopolies, Russian wireless provider Mobile TeleSystems is one that comes to mind.
Mobile TeleSystems says it possessed the highest mobile market share in Russia at 31% as March 2017. No, 31% doesn't exactly sound like a virtual monopoly, but if we look at net customer additions in Russia in 2016, we see that Mobile TeleSystems wound up accounting for more than half (52%) of all new subscribers, even as Russian cellular penetration increased to 179% in 2016.
While we often take for granted that nearly the entire U.S. has access to 4G or LTE speeds, that isn't the case in Russia. While a number of the largest cities in Russia have faster speed capabilities, infrastructure expansion to outlying suburbs is where the bulk of Mobile TeleSystems' new growth lies. In addition to reaching new consumers, MTS, as Mobile TeleSystems is also known, has the ability to profit from data upgrade cycles. As the infrastructure improves, the expectation is that consumers will want to upgrade their cell phone or smartphone as well.
Though Russia is MTS' primary cash cow, it also has operations in Ukraine, Armenia, Turkmenistan, and Belarus. With the exception of Turkmenistan, all other countries have been demonstrating solid growth of late, with margin in Belarus and Armenia topping 49% and 47%, respectively, in the company's fiscal third quarter.
Considering that it's primarily a contract-driven business with predictable cash flow, MTS is able to pay out a handsome dividend to its shareholders. Currently yielding almost 8%, Mobile TeleSystems could be worth a closer look.
Guaranteed business with growth on tap
Maxx Chatsko (Green Plains Partners LP): I'm cheating a little bit, because Green Plains Partners LP actually does have a monopoly. It was created to handle all of the transportation and logistics for Green Plains, which is North America's second largest ethanol producer, with 1.5 billion gallons of annual production capacity. The parent company owns 65% of the master limited partnership.
I know, I know. Ethanol and biofuels don't exactly scream stability or high margin, but the master limited partnership operates a fee-based business. In other words, the services it provides are in no way linked to the price of a gallon of ethanol. That means the relatively high level of dependence on the operations of its parent company is actually a good thing, since it guarantees steady streams of revenue, earnings, and cash flow from one of the world's leading ethanol producers. It's an enviable gig.
In 2017, Green Plains Partners LP generated $64 million in operating cash flow on $109 million in revenue -- and distributed nearly $58 million to shareholders. It also made moves to diversify revenue and earnings from non-affiliate companies. That included the formation of a 50/50 joint venture with Delek Renewables on an ethanol storage terminal that will be completed in the first quarter of 2018.
In addition, the partnership expects to purchase a new ethanol export terminal from its parent company in the first half of 2018. It will service various customers shipping American ethanol and other fuels around the globe and provide Green Plains Partners LP with the opportunity to piggyback on perhaps the most important growth vector for the industry: exports. Long story short, this high-yield dividend stock (yielding 10%) may be thinly traded and relatively obscure, but has a stable business thanks to its parent and is actively working to diversify its income. Investors should give it a closer look.
The bottom line
There's no way to guarantee that these three stocks will continue to enjoy their own virtual monopolies forever. But whether we're talking about AB InBev's incredible portfolio of beer brands, Mobile TeleSystems' command of new cellular subscribers in Russia, or Green Plains Partners' enviable position handling transportation and logistics for its parent company, we like their chances of doing just that for the foreseeable future. And we think investors who buy now and collect their attractive dividends stand to be handsomely rewarded in the process.