High-yield dividends can be a great source of cash flow for investors if they last and grow over time. But they can also be a warning sign that the market doesn't think a company can produce enough to keep its dividend going long term.
Three of our contributors think they've found stocks that thread the balance between a high dividend yield and manageable risk: Brookfield Renewable Partners (BEP +1.96%), Gaming & Leisure Properties (GLPI +1.13%), and Verizon (VZ +2.75%).
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You can't go wrong with this clean energy dividend
Neha Chamaria (Brookfield Renewable Partners): With a solid presence in an industry that's only going to grow bigger and a current dividend yield of 6.5%, Brookfield Renewable Partners is one heck of a dividend stock that you can't afford to miss.
As you might have guessed from its name, Brookfield operates in the renewable energy space. There's no denying that the world is gradually, albeit slowly, switching to cleaner energy sources. As a yieldco, Brookfield acquires renewable-energy assets, mainly hydroelectric, and sells power to utilities under long-term,regulated contracts with the aim of generating stable cash flows, the bulk of which go into shareholders' pockets in the form of distributions (dividends).
That's a win-win for investors, both in terms of stability and potential distribution growth. In the past five years, Brookfield has grown its per share funds from operation and distribution at high single-digit annual compounded rates. The trend should continue, what with the company targeting 5% to 9% annual distribution growth for the long term, backed by high-quality investments that could earn as much as 12% to 15% returns.
After rallying nearly 18% in 2017, Brookfield shares have dropped as much as 13% so far this year, pushing its yield above 6%. That's a perfect opportunity for investors seeking a reliable, long-term source of steady income.
Make a bet on regional gaming
Rich Duprey (Gaming & Leisure Properties): Gaming & Leisure Properties was the first real estate investment trust focused on the casino industry, and because its specialty is in the regional gaming markets and not the more high profile cities of Las Vegas or Atlantic City, it offers investors a rare opportunity to capture gaming's growth away from the bright lights.
Created by Penn National Gaming (PENN +16.86%) to house the real estate of 21 of its 29 casinos and racetracks and then lease the properties back, it became something more unique when casino operator Pinnacle Entertainment (NASDAQ: PNK) also sold Gaming & Leisure its gaming real estate for the purpose of leasing the properties back. It's not unheard of for a REIT to own the competition's real estate, but it is rare.
It might not be unique for very long, however, as Penn National is seeking to buy Pinnacle in a $3 billion merger deal, meaning all of the properties Gaming & Leisure owns will once again belong to one owner.
Gaming & Leisure Properties is the third-largest publicly traded triple-net REIT, which means the tenants, in this case the actual casino operators, agree to pay all real estate taxes, building insurance, and maintenance on the properties. And like other REITs, it pays out most of its profits to investors in the form of dividends. Its dividend yields 7.7%.
There are pockets of weakness in the regional gaming markets, which is helping to fuel industry consolidation, but other markets are strong and growing. As the biggest REIT in the business, Gaming & Leisure Properties will likely reflect both of those dynamics, but should be a good investment in the long run.
The early leader in 5G
Travis Hoium (Verizon Communications): The telecommunications world seems like it's a free for all now with Verizon, AT&T, Sprint, and T-Mobile are staking their claims to consumers ranging from demanding users to budget consumers. As the technology that separates them levels out, the advantage Verizon had for years in the market has subsided, and Verizon hasn't been a hot stock as a result. But if you're looking for a company that generates a steady stream of cash flow to pay a growing dividend, Verizon looks like a great pick for investors.
VZ Net Income (TTM) data by YCharts
I think Verizon's financial performance will also pick up as 5G networks are launched in the U.S. later this year. Verizon is going to lead the way, racing AT&T to build the biggest 5G network. In 2018, Verizon has said it will likely offer a mobile hotspot to consumers with 5G mobile phones coming in 2019.
What excites me about 5G is that it's going to enable a host of new technologies from self-driving cars to mobile virtual reality. A consumer with a single smartphone connection today may have a half-dozen 5G connected devices in a few years, and each connection is a revenue opportunity for Verizon.
Today, Verizon's dividend yields 5%, and given the growth potential ahead in 5G networks I think that's a great value for investors. There aren't many companies that can keep up with Verizon in telecommunications, and given how much we're connected to the world these days that's a business I want to be long on.
Great dividends for any market
Whether you're looking for a dividend in an emerging industry like renewables or more markets like gaming and telecommunications, these picks are great for investors. They're the kind of stocks you can hold long-term and just watch the cash flow come rolling in.
