Owning high-quality, high-yield dividend stocks is the most effective way for investors to achieve outsize returns over the long run. But while many such stocks might seem attractive, it can be difficult to tell whether their high payouts, and the strength of their underlying businesses, are sustainable.
To that end, we asked three Motley Fool contributors to each identify a top dividend stock that yields at least 4%. Read on to learn why they like Tanger Factory Outlet Centers (SKT +1.43%), W.P. Carey (WPC +0.00%), and Las Vegas Sands (LVS 0.22%).
Check out the latest Tanger, W.P. Carey, and Las Vegas Sands earnings call transcripts.
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Shopping for a juicy yield
Steve Symington (Tanger Factory Outlet Centers): This isn't the first time I've touted Tanger Factory Outlet Centers as an attractive high-yield dividend stock. But with an annualized yield of 6.6% as of this writing, and as long as the outlet-center real estate investment trust (REIT) continues to prove that its model is an important part of today's retail industry for both its tenants and consumers, I'm more than happy to repeat my recommendation.
That said, Tanger's growth has suffered of late as it opts to make strategic rent adjustments to ensure it maintains a high portfolio occupancy rate, which stood at 96.8% last quarter. The company has also warned investors that it will probably need to deal with tenants pursuing bankruptcy, along with store closures and further lease adjustments, in the coming quarters.
At the same time, when Tanger most recently announced quarterly results last week, it revealed improved sequential performance that helped the company exceed expectations in 2018 and raise its dividend -- this time by 1.4% to $1.42 per share -- for the 26th consecutive year. Tanger also announced that it's in the early stages of future development for a new 280,000-square-foot outlet center in Tennessee.
Of course, you might worry that Tanger's high yield is too good to be true. But as CEO Steven Tanger noted in last quarter's earnings release, it will be no problem to maintain, as it's "supported by one of the lowest payout ratios in the sector, along with a fortress low-levered balance sheet."
For investors willing to buy Tanger and collect that big dividend, I think the stock should handily beat the market as it solidifies its supporting position in our changing retail landscape.
These knocks are really benefits
Reuben Gregg Brewer (W.P. Carey): W.P. Carey is a REIT that owns what are known as net lease properties. More on that in a second. For right now, focus on the fact that it offers a robust 5.5% yield, well above peers Realty Income (O +0.68%) and National Retail Properties (NNN +1.03%), which yield 3.9% and 3.8%, respectively. Carey's dividend, meanwhile, has increased every year for more than two decades, roughly equivalent to these industry bellwethers.
Some investors don't like that Carey is super diversified, but it's really a net positive. For example, the REIT's portfolio is spread across the industrial (27% of rents), office (23%), retail (17%), warehouse (16%), education (4%), and "other" sectors. It also generates around 35% of its rents from foreign markets. Far from a negative, this diversification gives Carey a host of ways to grow its business that its peers, which are largely focused on the domestic retail sector, lack.
WPC Dividend Yield (TTM) data by YCharts
What isn't different, however, is the boring net lease model. Like its peers, Carey owns assets where the lessees pay most of a property's operating costs, such as taxes and maintenance. It's a stable business model with long-term leases that usually contain built-in rent increases. Carey makes the spread between its funding costs and the rates it earns on the investment, often purchasing properties directly from the eventual lessees that are looking to free up cash for desirable purposes such as expansions and acquisitions.
Carey isn't your typical triple net lease REIT, but that's a benefit and a buying opportunity all in one, if you're willing to think a little outside the box.
Let the house pay you
Leo Sun (Las Vegas Sands): Las Vegas Sands, the world's biggest casino company, currently pays a forward dividend yield of over 5%. It started paying that dividend in 2012, and it's raised that payout every subsequent year. Sands spent less than 100% of earnings and free cash flow (FCF) on that dividend over the past 12 months -- which gives it room for future increases.
Sands' stock doesn't look expensive at 17 times forward earnings, but analysts expect its revenue and earnings to both slip about 2% this year on softer growth in Macau, its biggest market, and Singapore, which is struggling with lower VIP volumes. Higher investments in Macau are also expected to throttle its earnings growth.
But over the long term, Sands' growth should accelerate again on other catalysts. The new Hong Kong-Zhuhai-Macao Bridge should drive more visitors to Macau, where it's expanding the Four Seasonx Tower Suites, St. Regis Tower Suites, and The Londoner with aggressive investments.
Its expansion into Japan, which recently legalized casinos, could offset its softer growth in Singapore. A trade deal between the U.S. and China would also bolster consumer confidence in China, which could trickle down to its casino resorts. Sands repurchased $550 million in shares (14% of its FCF) over the past 12 months, and it plans to deploy more "aggressive" buybacks in 2019.
Sands isn't an exciting investment, but its high yield and low valuation should set a floor under the stock. It will probably tread water this year, but it should rally as the gaming cycle heats up again.
Sit back and collect your checks
Nobody can guarantee that any dividend stock will go on to thrive and achieve outsize returns for investors. Rather, shareholders would do well to keep tabs on their holdings from quarter to quarter to ensure that their buying thesis remains intact. But given the current states of Tanger Factory Outlet Centers, W.P. Carey, and Las Vegas Sands, we think patient investors who buy now will be happy with their decision.
