With the markets off to a volatile start in 2020, the relative safety of dividend stocks is looking quite attractive to investors.
If a reliable and steadily growing stream of dividend income sounds intriguing to you, read on to learn about two of the best cash-paying stocks available in the market today.
The oil and gas titan
With heightened tensions between the U.S. and Iran increasing the possibility of military conflict in the Middle East, oil prices could surge in 2020. If such a dire situation occurs, many businesses -- and the economy as a whole -- could suffer. One way to protect your portfolio from this potential market shock is to invest in businesses that benefit from higher oil prices, such as ExxonMobil (XOM 0.15%).
ExxonMobil is a $300 billion behemoth in the energy industry. The oil and gas giant's massive scale and advanced technology allow it to complete projects that many of its smaller rivals would find difficult to undertake. ExxonMobil's management says that the company currently has the best portfolio of investment opportunities since Exxon and Mobil merged back in 1999, with expected average returns of approximately 20%.
Moreover, ExxonMobil's diversified operations help it make money in nearly all market environments. While its production operations benefit from higher oil and gas prices, its refining business can remain profitable even if prices remain low. This helps to make ExxonMobil's stock less risky than pure exploration and production companies.
Better still, ExxonMobil offers plenty of upside for investors who buy shares today. Some analysts think its stock could rise more than 40% to $100 per share in 2020, thanks to the progress it's making with its plan to boost production to 5 million oil-equivalent barrels per day and double its profits by 2025. This potential for significant share price appreciation, combined with ExxonMobil's hefty 5% dividend yield, makes the oil and gas titan a great buy today.
The cannabis play
Income investors seeking another stock with strong growth prospects will want to take a look at Innovative Industrial Properties (IIPR -2.54%). The real estate investment trust (REIT) is an excellent way to profit from the surging growth of the marijuana industry.
IIP purchases real estate that can be used to produce medical marijuana. It leases these properties to licensed growers in the U.S. IIP also serves as an important source of capital for cannabis producers, many of whom have been deprived of access to traditional means of financing. By acquiring property directly from cannabis companies and leasing it back to them, IIP can help these businesses free up funds to expand their operations and fuel their growth.
IIP's properties also serve as steady sources of dividend income for investors. IIP typically signs long-term leases between 10 and 20 years, with initial rental terms that generate returns of 10% to 16% on its investment. Annual rent escalations of 3% to 4.5% help ensure IIP's rental income increases year after year at a rate above that of inflation.
All told, 2019 was a difficult year for cannabis stocks, as regulatory delays, slower-than-expected retail store openings, and a persistently strong black market all took a toll on the industry's growth. And yet, IIP's stock delivered total returns of more than 70% last year to its investors. The REIT's decision to lease its properties only to well-capitalized cannabis companies that have successfully completed strict state licensing requirements has helped to insulate its business from many of the industry's challenges.
In 2020, Innovative Industrial Properties remains a relatively low-risk way to profit from the cannabis industry's torrid expansion. Its shares yield 5.2% today, and it's likely to continue to boost its cash payout as it grows its marijuana-focused real estate portfolio in the years ahead.