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2 Stocks to Buy With Dividends Yielding More Than 5%

By Neha Chamaria - Sep 1, 2018 at 7:15AM

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With exponential growth potential ahead, these high-yield REIT stocks could bring big, fat dividends your way for a long time.

Who doesn't like high-yield dividend stocks? With the S&P 500 yielding less than 2%, a stock with a  5% or higher yield is enough to make a dividend lover drool.

Of course, that comes with a caveat: Not all yields are safe. But there's nothing like it if you can find stocks that pay solid dividends yielding 5% or more, backed by steadily growing profits and cash flows that have the potential to ensure the dividend isn't just sustained, but will grow over time. Two such stocks you can look at today are Welltower ( WELL -2.05% ) and Iron Mountain ( IRM 0.13% ).

Both companies are real estate investment trusts (REITs), which means they're required to pay out at least 90% of their income as dividends to shareholders. Not surprisingly, they're a great choice for income investors.

For shareholders, taxes on income from REIT dividends aren't a problem either, except in certain circumstances where it can get a little complex. But don't forget to weight that complexity against the potential returns some REITs have to offer. Welltower and Iron Mountain are two fine examples.

A stack of coins with a dice on each saying yield.

Image source: Getty Images.

Welltower: Dividend yield 5.3%

Welltower is a top REIT for income investors for the simple reason that it's a leader in healthcare REITS. This is a solid competitive advantage given that healthcare is not only a defensive sector, but has strong tailwinds ahead as the U.S. population ages rapidly. (The U.S. Census Bureau estimates the number of older people will outnumber children by 2030 for the first time in U.S. history.) 

In fact, an aging population bodes particularly well for Welltower, as it gets the bulk of its rental income from senior housing properties (72% as of last quarter). Acute care, post-acute care, and outpatient medical facilities bring in the rest of its income. Demand for these services has only grown over the years, which is why Welltower could grow its per-unit funds from operations (FFO) and dividends at a steady pace.

There are two broad growth catalysts for Welltower. First is its ongoing restructuring program that should free up its portfolio of non-core assets and generate billions in proceeds that can be used to pare down debt and fund growth. Those changes would be welcome.

Second is the company's focused expansion into high-potential, high-margin markets like urban areas and outpatient care. Welltower has the financial muscle to enter less explored, but attractive, markets -- which could open the doors to even bigger opportunities at a later stage. 

Welltower is striving to become a leaner and stronger company, even as healthcare spending rises slowly but steadily. The combination should be good enough to drive the company's cash flows and dividends higher for years to come.

Iron Mountain: Dividend yield 6.5%

Iron Mountain is a REIT from an entirely different industry, but with equally or even more compelling prospects. Iron Mountain is a self-storage REIT -- it provides physical records and cloud-based data storage solutions.

The growing need to store and protect data, particularly to meet regulatory requirements for data security, has meant exponential growth for the company. From only 85 facilities in 1996, Iron Mountain now owns more than 1,400 facilities, serving 225,000 customers across 53 countries. It's no mean feat that the company counts 95% of Fortune 1000 companies among its clients.

Here's an extraordinary statistic: 50% of the boxes stored in Iron Mountain's North American facilities 15 years ago still remain with the company. That should not only give you an idea of customer stickiness, but also about the long-standing rental agreements and recurring revenues and cash flows that Iron Mountain enjoys.

Graphs showing Iron Mountain's projections for revenue, AFFO, adjusted EBITDA, dividend, and leverage through 2020.

Image source: Iron Mountain.

Iron Mountain aims to grow its adjusted FFO at a compound annual rate of 11.2% and its annual dividend by a "minimum" of 4% through 2020. The opportunities in data storage are huge, especially as the company expands its footprint in emerging markets.

The company offers rock-solid growth prospects, committed dividend growth goals, and a hefty 6.5% yield, so investors should be able to earn returns as solid as Iron Mountain's name in the long run.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Iron Mountain Incorporated Stock Quote
Iron Mountain Incorporated
$47.09 (0.13%) $0.06
Welltower Inc. Stock Quote
Welltower Inc.
$80.40 (-2.05%) $-1.68

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