The coronavirus market crash has sent yields of several dividend stocks shooting through the roof. A high dividend yield can be alluring, but savvy income investors should avoid getting trapped, as not all high-yield dividend stocks make good investments. Now is the time to look for dividends that are safe, unlikely to be cut, and more likely to grow when things improve.
Keeping that in mind, here are my top three high-yield dividend stock picks right now that yield at least 5% currently.
A promising, top-class dividend stock
Brookfield Infrastructure Partners (BIP 0.30%) is among the few companies that might find opportunities during a downturn. Acquisitions are a key part of Brookfield's business strategy, and such challenging times throw up ample opportunities to acquire assets, especially distressed, which Brookfield can then turn around into strong cash-flow-generating businesses.
That's not to suggest Brookfield has announced any deal or plan, but such is the nature of Brookfield's business, and it has proved its mettle so far, making it a top dividend stock to own through business cycles. Brookfield yields 6% today, and dividends have grown at a compound annual rate of 11% since 2009.
Not all high-yielding dividend stocks are great. Image source: Getty Images.
Brookfield's success largely lies in its portfolio, which includes plenty of assets that can earn steady cash flows even during a recession. Assets include:
- Utilities: regulated electricity and gas transmission and distribution
- Transport: rail, ports, toll roads
- Energy: midstream natural gas assets, distributed energy
- Data infrastructure: data transmission, distribution, storage
Brookfield ended 2019 with a strong balance sheet, management remains committed to rewarding shareholders, and parent Brookfield Asset Management has the fortitude to ride out the coronavirus storm. All of this makes Brookfield Infrastructure a top high-yield stock to consider.
Short-term pain, long-term gain
As a real estate investment trust (REIT), Welltower (WELL +0.61%) is a dream dividend stock given that a REIT is structurally required to pay at least 90% of its taxable income as dividends to shareholders. As a healthcare REIT, though, Welltower faces its fair share of challenges, including potential business loss because of the COVID-19 coronavirus outbreak that could result in an unfortunate decline in occupancy at its senior housing facilities.
You see, Welltower generates more than 60% rent from senior housing, but it's also the largest and a well-managed healthcare REIT, which tells me the recent sell-off is an opportunity to scoop up some shares while it yields a whopping 7.6%. That yield may not be sustainable, but Welltower's dividend looks safe.
To boost liquidity during these trying times, Welltower recently raised a low-interest term loan of $1 billion, adding to its $1.5 billion of existing available borrowing capacity. At the same time, Welltower also raised $694 million in proceeds from disposition of non-core assets through the first three months of the year.
According to Population Reference Bureau's Aging in the United States bulletin, the population of Americans aged 65 and above is projected to double between 2018 and 2060, and there could be a 50% jump in the numbers of Americans in that age group requiring "nursing home care" by 2030. It's the buildup of a conducive business environment for a healthcare REIT, making Welltower an intriguing high-yield dividend stock for the long term.
This stock sees peak demand amid coronavirus fears!
Nutrien's (NTR +1.41%) 5.6% dividend yield is the highest among the major agricultural chemicals stocks.
The Department of Homeland Security has identified food and agriculture, which includes the fertilizer industry, as a COVID-19 "critical infrastructure sector," which means much of the industry continues to operate despite coronavirus lockdowns. Potash, phosphate, and nitrogen are the three primary nutrients used in fertilizers, which are essential for soil fertility and crop productivity. Nutrien is the world's largest potash company and among the largest phosphate and nitrogen manufacturers.
On March 30, Nutrien said its facilities are operational given that its business has been recognized as an "essential service," and that it expects "solid demand" for crop inputs in the approaching peak spring season. "Nutrien has a strong balance sheet, stable dividend, and ample access to liquidity as we enter our peak period of demand," said CEO Chuck Magro.
Nutrien earned GAAP earnings per share (EPS) of $1.70 and adjusted EPS of $2.17 in 2019, and the company projects 2020 adjusted EPS to range between $1.90 and $2.60. Adjusted EPS excludes the impact of non-recurring charges such as those related to mergers, acquisitions, and asset impairments. Nutrien's free cash flow (FCF) grew 9% to $2.9 billion, less than half of which was paid out in dividends. Now that's a conservative FCF-payout ratio, making Nutrien an interesting dividend stock.
