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3 Stocks to Buy With Dividends Yielding More Than 5%

By Reuben Gregg Brewer - Jan 30, 2020 at 8:10AM

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Big yields, diversified businesses, solid histories of executing well for shareholders -- and just a little bit out of favor.

Although the fear of a global pandemic related to the Wuhan, China, coronavirus has the stock market pulling back from all-time highs, the fact of the matter is that it remains richly valued, and it's still hard to find desirable investments with big dividend yields at bargain prices.

But if you are willing to do a little homework, you can find what you are looking for. To help get you started on the right foot, here is a trio of 5%-plus dividend-yielding stocks to consider. Each is large and diversified and each has a long history of doing what it does very well. 

1. Enterprise Products Partners: Moving oil where it is needed

Oil and natural gas prices are low, but energy giant Enterprise Products Partners (EPD 1.46%) really doesn't care. That's because it's one of the largest players in the midstream space. It gets paid for moving oil, natural gas, and the products they get turned into through its massive collection of pipelines, processing plants, and storage assets, among other things. Roughly 85% of its top line comes from fees backed by long-term contracts, and those contracts often include regular annual price hikes. 

A man in a suite shooting hundred dollar bills off of a pile in his hand

Image source: Getty Images

This master limited partnership currently offers a yield of around 6.5% backed by over two decades of annual distribution increases. Even better, it covered its distribution by a robust 1.7 times through the first nine months of 2019. And Enterprise's financial debt to EBITDA is toward the low end of its peer group at roughly 3.4 times. In other words, it is a conservatively financed industry giant with a well-covered distribution. It also has $9.1 billion of capital projects in the works that should keep its business growing. 

If you like dividends, that should all sound pretty enticing. To be fair, Enterprise stock won't excite you, and you should only expect distribution increases in the mid-single-digit space over time. But with a high yield backed by a solid and growing business, that's a worthwhile trade-off for conservative investors.

2. Simon Property Group: Long live the mall

Simon Property Group (SPG 0.08%) is one of the largest real estate investment trusts (REITs) around and offers a 5.8% yield backed by a decade of annual dividend hikes. The only problem is that it owns a portfolio of around 200 malls and factory outlet centers. Its shares are down 20% over the past year, while the average REIT, as measured by the Vanguard Real Estate ETF, is up 18%. While the "retail apocalypse" is likely overhyped, consumer buying habits are changing, and that is impacting retailers and the malls where they have physical stores. The fear that the mall is dead is dragging Simon's stock down. 

Some malls do need to die, but not the well located and highly desirable ones that Simon owns. In fact, it has one of the most productive mall portfolios in the mall REIT space. To be fair, its spending is a bit higher now, but that's because it's dealing with tenant bankruptcies and store closures, and curating its malls to better appeal to today's shoppers. But it has one of the strongest balance sheets in the mall REIT space and roughly $7 billion in liquidity to see it through this industry rough patch. The dividend, meanwhile, is backed by a very reasonable funds from operations (FFO, comparable to earnings for an industrial concern) payout ratio of roughly 70%.  

SPG Dividend Yield Chart

SPG Dividend Yield data by YCharts

You'll need a strong stomach to own Simon since the retail sector headlines are going to continue to be downbeat for a while. But this looks like a case where investors are throwing the baby out with the bathwater -- and you have a chance to catch the baby!

3. Ventas: A rare misstep

The last name on the list is healthcare REIT Ventas (VTR 1.02%), which offers a nearly 5.4% yield backed by nine consecutive annual dividend increases. The company owns a collection of senior housing, medical office, and medical research assets. It has a long history of strong execution, but it stumbled in 2019. That misstep has investors worried that this once-proud company has lost its way.

But when you look more closely, it looks more like management just misjudged its timing. The big story in the healthcare REIT space is the aging of the baby boomers. As this generation continues to settle into retirement, its healthcare spending will increase, and so will demand for the properties where that spending will take place. This is just demographics. However, it isn't a secret, so a lot of money has been invested in this idea. That's particularly true when it comes to senior housing, which makes up around 50% of Ventas' portfolio. Of that, two-thirds is what is known as senior housing operating portfolio (SHOP in industry lingo) assets (they are around a third of the REIT's overall portfolio). This is the big problem.

Ventas both owns and operates its SHOP portfolio, meaning that it gets the benefit of strong property-level performance and takes a hit when performance is weak. There's a supply imbalance in the senior housing space today that is depressing rents and occupancy, so Ventas' SHOP portfolio is dragging down results. It isn't pretty, but it's hardly a death blow. In fact, the other two-thirds of its portfolio is doing just fine, and, more importantly, new senior housing construction is low and demand for these assets remains high. So it looks like the oversupply hitting the SHOP business will just take a little time to work off. And when that happens, Ventas should easily get back on its feet. If you can deal with the near-term uncertainty, the long-term risk here seems minimal. 

Loving the uglies

In a world where dividends for the S&P 500 Index yields less than 2%, finding 5% or higher yields requires a little work and a little faith. Companies like Enterprise, Simon, and Ventas are well run, but they come with their fair share of warts. If you can see past these surface defects, though, there are very solid businesses underneath that are pretty easy to love. You just need to do some homework to understand the full story. Now that you know what's going on at this trio of high-yield names, it's time for a deeper dive. 

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Stocks Mentioned

Simon Property Group, Inc. Stock Quote
Simon Property Group, Inc.
$116.87 (0.08%) $0.09
Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
$26.46 (1.46%) $0.38
Ventas, Inc. Stock Quote
Ventas, Inc.
$55.57 (1.02%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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