Chasing yield can be a dangerous pursuit for income-loving investors, as some of the most dangerous dividend-paying stocks sport very high yields. But that doesn't mean all high-yield stocks are risky. In fact, some can generate substantial total returns for investors. Welltower (NYSE:HCN), PetMed Express (NASDAQ:PETS), and National Presto (NYSE:NPK) are three high-yielding stocks that could just fit the bill.
This 5.6% yield offers an attractive opportunity
Neha Chamaria (Welltower): After a sharp reversal in May, Welltower already seems to be giving up a good portion of the gains it tacked on since -- shares are down almost 8% in just the past month, as of this writing, pushing the stock's yield up to a beefy 5.6%. There's nothing wrong with the company per se. On the contrary, Welltower has some strong catalysts ahead, which is why you might want to give this high-yield stock a shot. Consider the following:
- Leader in the industry: Welltower is a leading healthcare real estate investment trust, or REIT, that owns properties in senior housing, post-acute care, and outpatient medical, and leases them to healthcare providers.
- Industry growth: A rapidly aging population should drive healthcare spending and ensure stable occupancy and steady rental income streams for Welltower.
- Internal shakeup: Welltower is striving to free up cash tied to non-core assets and reinvest it into lucrative, less-explored markets such as in urban areas to strengthen its core portfolio. That sounds like a smart business move, one that should boost margins in the long run if plans fall into place.
- REIT structure: Steady income should mean stable and growing dividends for Welltower shareholders, as the company is required to pass on at least 90% of its taxable income to shareholders as dividends.
The above factors build a strong investment thesis for Welltower, one that should compel investors to look beyond short-term hurdles such as rising interest rates. Welltower's dividend is not only sustainable but also possesses strong growth potential, making it a top high-yield stock to add to your portfolio.
This dividend stock is on the upswing
George Budwell (PetMed Express): With a yield of 3.72%, PetMed Express offers one of richest dividends in all of healthcare. Even so, this high-yield healthcare play arguably still has room to grow its top-flight dividend program -- as evinced by both its trailing payout ratio of only 45% and particularly strong outlook. As an added bonus, PetMed's shares are currently trading at a rock-bottom price-to-sales ratio of 2.11. That's dirt cheap for a healthcare company offering an upper-echelon yield and high-single-digit revenue growth.
Why are PetMed's shares being overlooked by the market? The most likely reason is the increasingly competitive landscape in the online pet-pharmacy space. As a result of more companies offering pet medicines and supplies online, PetMed's gross profit margin has been steadily moving in the wrong direction over the past 10 years. Unfortunately, this unfavorable trend is likely to continue as even more competitors enter the market.
On the bright side, PetMed has been able to offset this decline in profitability by increasing its overall sales volume. In the first six months of 2018, for example, the company's sales jumped by a healthy 8.5%, compared to the same period a year ago. And the best part is that a good chunk of this increase in net sales came from reorders from loyal customers. In short, PetMed's underlying business is thriving, and that's the kind of company that should keep income investors happy over the long haul.
Cook up some growth with this steady stock
Rich Duprey (National Presto): You probably can't find a more incongruous business operation than National Presto, best-known for its housewares and small appliances like skillets, slow cookers, and waffle makers, but which actually makes most of its money from military-grade ammunition and ordnance sales, an oftentimes complicated business. The unit accounts for more than three-quarters of all revenue generated.
The housewares and small-appliances segment has been hurt by the upheaval in retail that has taken out a lot of locations where its products sold, which led to segment sales falling 10% last year. Conversely, contracts with the Defense Department helped the other segment's revenue rise 1% to $236 million.
Business may be turning around for the kitchen products division, as sales were up 6% in the most current quarter, though they're still down 8% year to date. Defense sales were also up 6% as the company sold more orders in its backlog.
Yet National Presto has an impressive, unbroken 74-year history of paying dividends to shareholders, and the payout currently yields 4.7%. It flies under the radar of Wall Street, which has no ratings on it, and its stock has gained 30% so far in 2018. Over the past three- and five-year periods, it has also outperformed the S&P 500.
In short, it's a steady performer year in and year out that many investors might not even think about, which gives you an excellent opportunity to acquire a stable business that continues to grow and pay shareholders.