Investing in high-yield dividend stocks is one of the most effective ways to predictably generate wealth and income over time. But it's not easy to find good-quality businesses capable of sustaining their high yields.
So we asked three top Motley Fool contributors each to find a high-yield stock that's still worth buying. Read on to learn why they chose Tanger Factory Outlet Centers (SKT 0.14%), Carnival (CCL 0.82%), and Iron Mountain (IRM +2.29%).
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Take advantage of this yield while it lasts
Steve Symington (Tanger Factory Outlet Centers): Shares of Tanger Factory Outlet Centers fell hard in May after the outlet-mall real estate investment trust (REIT) modestly reduced its full-year guidance for earnings and funds from operations. According to management, that tempered guidance was driven by a combination of higher-than-expected store closures from tenant bankruptcies, bad weather at the start of the year, and selective rent adjustments -- the last of which CEO Steven Tanger said is a "proven and successful strategy" to keep portfolio occupancy rates high and continue to drive healthy traffic and sales.
Still, investors have fled the stock in recent months, and in doing so -- while keeping in mind Tanger has increased its dividend every year since it started paying one in 1993 -- they've left Tanger Factory Outlet Centers' annual dividend yield at a mouthwatering 5.8% as of this writing. For perspective, we haven't seen its yield rise that high in over a decade:
Of course, that could change if Tanger offers encouraging progress with its next quarterly report this week. But for investors willing to buy now and bet that Tanger's outlet centers are still an important channel for brick-and-mortar retailers, I think the stock offers an attractive combination of potential share-price appreciation and capital returns.
Set sail for a high yield
Demitri Kalogeropoulos (Carnival): High dividend yields often involve unappealing trade-offs that require an investor to buy into a weak growth outlook or lackluster earning profile. But that's not the case for cruise-ship giant Carnival, which today pays a yield that's comfortably above 3%.
The company in late June announced its second straight quarter of sales growth that sailed past management's targets. In fact, its gains in net revenue yield sped up to 4.8%, compared to the prior quarter's 3.9% increase. Cost growth was muted, too, which allowed operating income to jump 10% as earnings beat expectations.
Sure, Carnival's next few quarterly reports could be pressured by rising fuel costs. Other investor concerns include softening demand in important markets like the Caribbean. The cruise-ship leader could also face a tough operating run if the upcoming hurricane season is a repeat of last year's.
But the business is enjoying strong overall demand trends, rising ticket prices, and increased onboard spending by its guests. And, with 18 new ships joining the fleet over the next five years, Carnival's cabin supply should closely track increasing demand, as the pool of retirees grows and more consumers in emerging markets join the middle class.
On the comeback trail
Keith Speights (Iron Mountain): Investors punished Iron Mountain for issuing new shares and taking on more debt to fund its acquisition of IO Data Centers' U.S. operations in late 2017. However, the stock is now on the comeback trail. I think that Iron Mountain is a dividend investor's dream that's definitely still worth buying.
Let's start with Iron Mountain's yield of 6.68%. Who wouldn't like that? Even better, Iron Mountain thinks it will be able to increase its dividend by at least 4% annually.
Income-seeking investors should love Iron Mountain's steady business model. The company is the largest provider of records and data storage in the world. Its customer base includes 95% of the Fortune 1000, and these customers tend to stay with Iron Mountain, which translates to a reliable revenue stream.
As an added bonus, Iron Mountain has pretty good growth prospects. The company benefits from the natural increase in records and data generated by its customers. It's also expanding geographically and into adjacent markets; Iron Mountain should continue to enjoy growth in emerging countries. The company's recent acquisitions have positioned it in both the lucrative data-center business and the art-storage business.
But what about that additional debt? CEO William Meaney says the company's debt leverage is in line with other REITs. He also remains confident that Iron Mountain will reduce its leverage over the next few years. Overall, the positives for this high-yield stock far outweigh the negatives.
The bottom line
We certainly can't guarantee that these three businesses will remain high-yield stocks forever, or that they'll go on to beat the broader market from here. But Tanger Factory Outlet Centers has a durable outlet-center niche, and a long dividend history; Carnival sees encouraging industry trends; and Iron Mountain has a steady business with promise for future dividend increases. So we think their stocks are still worth buying today.
