Chasing yield can be a dangerous pursuit for income-loving investors, as some of the most dangerous dividend-paying stocks sport very high yields. Better to look for stocks that can also enjoy a bit of capital appreciation with businesses solid enough to support the dividend, and perhaps even grow it over time.

ExxonMobil (NYSE:XOM), General Motors (NYSE:GM), and GEO Group (NYSE:GEO) have been identified by three Motley Fool contributors as meeting those criteria. Read on to see why you may want to buy one, two, or all three of them for your own portfolio.

Stacks of gold coins with seedlings growing out of them.

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Add some energy to your dividends

Dan Caplinger (ExxonMobil): When it comes to top stocks, it's pretty rare to see high-yielding dividend payers among the largest companies in the world. Yet oil giant ExxonMobil has achieved this status, with a dividend yield of 4.1%, and given its market capitalization of nearly $340 billion, ExxonMobil pays more cash in total dividends than all but a small handful of companies globally.

A big reason why ExxonMobil's dividend yield has risen has to do with its risk profile and how investors perceive the company. Even though crude oil prices have rebounded sharply from their lowest levels of a few years ago, the oil giant is large enough that it won't see as clear an improvement from rising crude as will smaller players in the industry. Rival Chevron has shown faster growth lately, with profit growth in its most recent quarter of more than 50% compared to just an 18% gain for ExxonMobil.

What ExxonMobil is counting on is its long-term projects paying off. That requires patience from shareholders, but over time, longtime investors know how rewarding the stock has been. In the meantime, collecting lucrative dividends is a great way to wait for the big returns that ExxonMobil has achieved historically.

Overlooked driverless car leader

Daniel Miller (General Motors): Most of the perception surrounding General Motors -- and the rest of the automotive industry -- is dire considering we're reaching peak auto sales in the U.S. market for this cycle. However, beyond that, General Motors offers investors a robust 4.26% dividend yield and a two-part story: a valuable core business and the future of mobility.

Looking more closely at GM's valuable core, it's pulling back on less profitable markets internationally and doubling down on its more profitable full-size trucks and its luxury Cadillac brand. One great thing for GM investors is that its truck business is a little different than the rest of the automotive industry. The truck segment offers stronger consumer loyalty, competitive moats, and strong new and used average transaction prices -- which is why Detroit automakers have dominated the segment for decades. GM believes its next-generation Silverado and Sierra architecture will be more profitable and can deliver significant growth on the top and bottom lines.

Another factor that has become increasingly important for global automakers is having a successful luxury lineup, because those sales are much higher margin compared to mainstream vehicle segments. Cadillac has boomed in China, and GM hopes to revive growth here in the U.S. by increasing its segment coverage. In fact, GM expects to have more than 90% market coverage by 2020 compared to 65% during the first quarter, thanks to releasing one new Cadillac every six months on average through 2021.

Doubling down on trucks and Cadillacs will help support GM's business as sales peak in the U.S., but for long-term investors, GM has turned itself into a potential leader in driverless vehicles. To sum up GM Cruise, the automaker's autonomous vehicle unit, its business scope will focus on the following: autonomous vehicle ride sharing, monetizing the driverless in-car experience, big data from its network of ride-sharing vehicles, and transportation of goods in its ride-share network. SoftBank, known for its technology investments, agreed to invest $2.25 billion in GM Cruise, valuing the unit at $11.5 billion, and one analyst has gone as far as to say it could be worth up to $43 billion

Those factors, along with GM's robust 4.26% dividend yield, make the automaker a top dividend stock with long-term upside for investors that can stomach slowing U.S. sales in the near term. 

Profiting from private prisons

Rich Duprey (GEO Group): With President Trump continuing his crackdown on illegal immigrants entering the country, private prison operators like GEO Group stand to benefit, and investors can reap the windfall.

Although controversial in some circles, the growing need for detention facilities to house those awaiting prosecution is acute. There were reportedly 50,000 people apprehended along the Mexican border in May alone, a 160% year-over-year increase.

Industry leader CoreCivic has operated detention facilities for the federal government for more than 30 years, and it should see an increase in the number of contracts it wins, but Geo Group has long been a participant in the market, and it operates processing and detention centers along the southern border.

Shares of both contractors have been rising since April, when Trump's enhanced policies went into effect, with CoreCivic rising 32% compared to GEO Group's 24% increase. Yet the former is a much more expensive stock. Both go for around 18 times trailing earnings and 17 times next year's estimates, but CoreCivic's stock trades at 52 times the free cash flow it produces compared to almost 20 times by GEO Group. That's not bargain material, but GEO Group is a sturdy real estate investment trust that saw revenues rise 4% last year to $2.3 billion. Like all REITs, GEO Group also pays out almost all of its profits as dividends to investors, a payout that currently yields 7.8%.

Income-seeking investors who are not put off by controversial stocks could earn substantial cash rewards for sticking by GEO Group as the tougher immigration policies play out.

 

Dan Caplinger has no position in any of the stocks mentioned. Daniel Miller owns shares of General Motors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.