High-yield dividend stocks can be a great way to generate cash in a stock market that seems to look like it's in frothier value territory every day. But not all high dividends are worth buying, because sometimes, high dividends can indicate weakness in a business.
Today, I'll take a look at four rock-solid dividends from Las Vegas Sands (LVS +0.84%), AT&T (T +0.45%), MGM Growth Properties (MGP +0.00%), and TerraForm Power (TERP +0.00%) and highlight why they're businesses -- and dividends -- that are built to last.
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Las Vegas Sands
Gaming stocks don't have a long history of paying dividends, but that doesn't mean they aren't great dividend stocks. Casino owners like Las Vegas Sands have spent billions of dollars building massive resorts that attract guests from around the world, and now that the resorts are up and running, cash flow keeps coming in on a pretty regular basis. Better yet, there aren't any great new investment opportunities in new casinos, so the best use of cash, in most cases, is returning it to shareholders.
LVS Dividends Paid (TTM) data by YCharts.
You can see that Las Vegas Sands has rapidly increased its dividend over the last five years and expects to pay $3.08 per share in dividends for 2019, up from $3.00 per share in 2018. On top of the dividend, Las Vegas Sands has $1.67 billion remaining on its authorized share repurchase program that's reduced shares outstanding by nearly 40 million shares in the last five years. I wouldn't expect Las Vegas Sands to be a big growth stock unless it starts expanding again, but it has consistent cash flow coming in and a 5.1% dividend yield, which makes it a great dividend stock today.
AT&T
The telecommunications business has been a dud for investors for most of the past decade. But AT&T's wireless service remains one of the largest in the U.S., and it plays an indispensable role in millions of people's lives. That's a solid foundation to build a dividend and growth strategy on.
In 2019, we're seeing the rollout of AT&T's 5G network, which will bring broadband speeds to smartphones. This will likely drive a new wave of growth as customers adopt new 5G plans and add connections to cars, homes, and more wearable devices. That means more connections in more areas on the market, which should drive growth.
With AT&T's stock trading at 11 times trailing earnings and paying a 6.5% dividend yield, it's a good high-yield stock to bet on.
MGM Growth Properties
I think a good dividend portfolio should contain at least one REIT, and my pick is MGM Growth Properties. I mentioned earlier that gaming companies generate a lot of cash flow, and MGM Resorts (MGM +2.46%) is the gaming company operating within real estate now owned by MGM Growth Properties. In that respect, MGM Growth Properties is adjacent to the gaming industry but also insulated from the ups and downs that can come with gaming operations.
The biggest thing to look for with a REIT is the coverage ratio, or the adjusted EBITDA a gaming company generates compared to the rent it owes to the REIT. In MGM's case, its coverage ratio is 6.2 times what it pays in net rent to MGM Growth Properties, enough to survive even a downturn as bad as the one we saw from 2007 to 2012 in the gaming industry.
MGM Growth Properties' dividend yield of 5.8% is solid even for a REIT, and with the backing of a strong cash-flow business, this is a dividend worth owning.
TerraForm Power
One of the underappreciated segments of renewable energy is yieldcos, companies that own renewable energy assets and sell electricity to utilities on long-term contracts. TerraForm Power is one of the largest yieldcos on the market, and it has a dividend yield of 5.5% with incredible stability in its cash flow.
The underlying assets of TerraForm Power are 3,737 MW of wind and solar power generators around the world, and they have an aggregate 13 years of contracted cash flow with creditworthy offtakers like utilities.
TerraForm Power's high yield isn't the end of the cash flow investors can expect from the company. Management aims to keep 15% to 20% of cash that's available for distribution to fund growth acquisitions. That could keep the dividend growing slowly but surely for years to come, which is great for an already-lofty dividend.
Rock-solid dividends
Each of these dividend companies operates in different industries, but they have strong operations and steady cash flow. If you're looking to buy high-yield dividend stocks, these are a great place to start.
