New year, new you, new sources of potential income to pore over! The changing of the calendar offers an opportunity for income-seeking investors to find attractive or overlooked dividend stocks to add to their portfolios.
If you need any reminder, a J.P. Morgan Asset Management report from 2013 reminds us that dividend stocks have run circles around their non-dividend-paying peers for decades. Companies that initiated and grew their payouts between 1972 and 2012 had an average annualized return of 9.5%, compared to just 1.6% for non-dividend payers over the same time frame. Dividend stocks are usually also time tested and profitable businesses that can easily contend with stock market corrections and short-term recessions.
Of course, the biggest challenge income investors face is finding the highest yield possible with the least amount of risk. The problem is that as yield rises, risk increases, too. That's why I've handpicked the following five high-yield stocks as those likeliest to make investors richer in 2020.
Innovative Industrial Properties
No joke: There really is a safe, high-yielding cannabis stock, and it is Innovative Industrial Properties (NYSE:IIPR).
Innovative Industrial Properties (IIP) is a cannabis-focused real estate investment trust (REIT) that began 2019 with 11 properties and ended it with 46 in 14 states. The beauty of this business model is that it leads to long-term, predictable cash flow. Providing updates following every acquisition, Innovative Industrial's weighted-average remaining lease length is 15.3 years, with an average return on its $489.3 million in invested capital of 13.6%. Translation: IIP will receive a complete payback on its invested capital in just over five years.
Furthermore, the company also benefits from marijuana remaining a Schedule I drug in the United States. This reduces access to traditional forms of lending from banks for multistate operators, making it more likely that they seek out a sale-leaseback agreement with the likes of IIP. It's no wonder the company's payout has grown 567% in the past nine quarters, leading to its current 5.3% yield.
Finding great high-yield stocks is all about predictability, and that's what you'll get with Russia's premier telecom company, Mobile TeleSystems (NYSE:MBT). MTS, as the company is known, is yielding a healthy 8.8% at the moment.
The source of this company's consistency is its wireless operations throughout Russia and, to a lesser extent, Armenia, Ukraine, and Belarus. Although wireless saturation is high in Russia, MTS is presented with an incredible opportunity, because infrastructure upgrades to 4G LTE and 5G networks in major cities and to 4G in rural parts of the country should spark a smartphone upgrade cycle and lead to even greater data consumption. Data is the high-margin hamster that makes Mobile TeleSystems' wheels spin.
Beyond just wireless growth, this is a company that's branched off into other industries. The incorporation of MTS Bank has led to year-over-year growth in its retail loan portfolio of 85% as of the third quarter, with cloud service revenue growth also particularly strong.
Despite being a less-followed international stock, Mobile TeleSystems should make patient income seekers richer in 2020.
Many on Wall Street have referred to the past 10 years as a "lost decade" for the energy sector, but that's not going to put a damper on midstream giant Kinder Morgan (NYSE:KMI) or its 4.7% yield in 2020.
Once again, the focus here is all about predictability. Although oil and gas prices tend to ebb and flow, which can adversely impact production and profit projections for drillers and, to a lesser extent, refiners, it tends to have minimal impact on pipeline and storage companies like Kinder Morgan. That's because the bulk of Kinder Morgan's revenue is derived from fee-based contracts. This allows the company to forecast its cash flow and expenses well in advance, which, in turn, helps Kinder Morgan plan its capital spending and projects without compromising its operating profits.
As my Foolish colleague Matt DiLallo recently pointed out, Kinder Morgan has also done a bang-up job of reducing its leverage through noncore asset sales. It'll end the year below its target of 4.5 times debt-to-EBITDA and looks to have the cash flow to significantly lift its payout in 2020.
Annaly Capital Management
Though this is bound to be an unpopular choice given how poorly mortgage REITs have performed in recent years, agency-based mortgage REIT Annaly Capital Management (NYSE:NLY) and its 10.2% yield could help make income investors richer this year.
While Annaly's asset portfolio of mortgage-backed securities might sound complex, the business model itself is pretty easy to understand. Annaly borrows at short-term rates and buys assets with higher long-term yields then pockets the difference. When interest rates are rising, the yield curve is flattening, or the rate environment is uncertain, the gap between short-term and long-term yields shrinks, thereby squeezing Annaly's profits and top-tier dividend. But if rates stay low or remain steady for an extended period of time, Annaly's bottom line usually benefits. Right now, we've pushed toward the latter scenario, with the Fed funds rate falling 75 basis points in 2019 and the nation's central bank hitting the pause button on future rate moves.
What's more, Annaly sticks to agency-only assets, meaning they're backed by the federal government in the event of default. That makes Annaly far less of a risk for income investors if and when the next recession strikes the U.S.
Lastly, I see no reason not to own one of the safest dividend stocks on the planet, AT&T (NYSE:T), which also happens to offer a 5.3% yield.
Like Mobile TeleSystems, AT&T is set to benefit from a major infrastructure and smartphone upgrade cycle. AT&T has already begun rolling out 5G in more than a dozen cities and should see a significant uptick in data usage from consumers once tech kingpin Apple introduces a 5G-capable iPhone later this year. With data providing a significant portion of AT&T's wireless profits, the 5G revolution could lead to a very real and sustainable uptick in growth.
AT&T is also focusing its efforts on streaming. The acquisition of Time Warner in 2018 gives AT&T access to the CNN, TNT, and TBS networks, while the launch of HBO Max in the first half of the year provides exclusivity that could help bring in new streaming users. If there's a company on this list that wouldn't bat an eye if a recession hit, it's AT&T.