It's no secret that high-yield stocks, on average, outperform the rest of the market. Not only that, but they're also usually less volatile. And with stock market volatility on the rise, adding some ballast to your portfolio may not be a bad idea.
With that in mind, we asked three of our Motley Fool contributors what high-yielding stocks they'd recommend. They came back with Enterprise Products Partners (NYSE:EPD), Medical Properties Trust (NYSE:MPW), and AT&T (NYSE:T). Each of these investments is structured differently, but all currently yield more than 5%. Here's why our contributors think these top yielders will help your portfolio outperform, even in the current market environment.
A consistent dividend grower
John Bromels (Enterprise Products Partners): For investors looking for high yields, master limited partnerships (MLPs) are a logical place to start. In exchange for preferential tax treatment, these investments are required to pay out almost all of their operating cash flow as distributions to unitholders. These distributions are essentially the same as dividends paid by stocks.
Because of this requirement, those payouts are usually quite high. Oil and gas pipeline and terminal operator Enterprise Products Partners is no exception, with a current distribution yield of 6.2%.
And that is steadily increasing: Enterprise has upped its payout for the last 59 consecutive quarters (i.e., almost 15 straight years). This trend looks set to continue, as numerous expansion projects totaling about $5 billion come on line, mostly within the next couple of years. These include improvements to the company's existing Gulf Coast export terminals and an expansion of an ethylene pipeline system in South Texas.
MLPs do have some additional requirements come tax time, so they may not be right for every portfolio. But for those interested in a reliable high-yielding investment, Enterprise is worth putting on your radar screen.
A great dividend and great long-term prospects
Keith Speights (Medical Properties Trust): Medical Properties Trust has a pretty simple business model. It acquires hospital real estate, then leases the properties back to the hospital operators. The hospital wins by getting an influx of capital, while Medical Properties Trust wins by getting a steady revenue stream over a long period of time.
Shareholders win, too. Because Medical Properties Trust is a real estate investment trust (REIT), it must distribute at least 90% of its taxable income back to shareholders in the form of dividends. The company's dividend yield currently stands at 5.61%.
There are two key problems that can hurt a REIT like Medical Properties Trust. First, it could take on too much debt and be at risk if interest rates soar. Second, its tenants could run into financial difficulties and fail to make their lease payments.
Medical Properties Trust appears to be relatively insulated from these issues, though. The company's cost of debt capital has continued to decline. Its debt-to-equity ratio is roughly in line with other healthcare-focused REITs. It is also decreasing its dependence on top tenants, thereby lowering its risk. So far in 2019, the company has reduced exposure to its top two tenants by 17% to around 42%.
Perhaps most important, though, is that its focus on acquiring and leasing acute-care hospitals to well-run operators should be a pretty safe bet over the long run. An aging population will boost the demand for healthcare services. With its strong dividend, solid business model, and great long-term prospects, Medical Properties Trust is a stock that dividend-seeking investors will want to carefully consider.
A classic dividend play with a low valuation
Leo Sun (AT&T): AT&T pays a forward yield of 6%, and it's raised that dividend annually for over three decades. It spent just 50% of its free cash flow on that payout over the past 12 months, so it still has plenty of room for future hikes. Furthermore, the stock trades at less than 10 times forward earnings.
AT&T has a low P/E because investors aren't too excited about its growth prospects. The company is still trying to digest its $85 billion takeover of Time Warner and trying to reduce its $160 billion in long-term debt with divestments, layoffs, and other cost-cutting measures.
It's repeatedly losing pay TV subscribers to OTT (over-the-top) rivals, its streaming strategy remains a fragmented mess of overlapping services, and its wireless business is running out of room to grow amid declining smartphone sales and tougher competition.
Despite all those headwinds, analysts still expect AT&T's revenue and earnings to grow 7% and 1%, respectively, this year. It's only expected to generate flat sales and just 2% earnings growth next year, but its wide moat should hold its rivals at bay.
AT&T's anemic growth might frustrate growth-oriented investors, but its robust free cash flow (which is expected to rise about 25% to $28 billion this year), well-diversified business, and low valuation still make it ideal for income investors.