High dividend yields help investors generate income from their investments beyond just capital appreciation -- but not all stocks are created equal. Sometimes high yields indicate that a business is running out of growth options or that investors aren't confident the dividend will last long. But there are some high-quality, high-yield dividend stocks if you know where to look.
AT&T (NYSE:T), Verizon (NYSE:VZ), MGM Growth Properties (NYSE:MGP), Las Vegas Sands (NYSE:LVS), and Brookfield Energy Partners (NYSE:BEP) are all great businesses with high yields that are built to last.
Two telecommunications dividends
Telecommunications companies aren't getting a lot of love from today's market because they are capital-intensive and aren't providing much growth. But what companies like AT&T and Verizon lack in growth, they make up for with outstanding cash flow and dividends.
You can see that free cash flow has been fairly consistent for a decade. Dividends have steadily grown over that time, now yielding 6.6% at AT&T and 4.3% at Verizon.
What I really like about these two companies long-term is where they sit in the telecommunications industry. Both will benefit from the merger of Sprint and T-Mobile, which has taken a competitor out of the market.
AT&T and Verizon are also building large 5G networks right now, which could provide growth. 5G has the potential to add tens of millions of connected devices like cars, wearables, and VR headsets given its extremely high upload and download speeds.
A dividend REIT with upside
The casino industry is going through its biggest challenge in years as resorts around the world closed this spring due to COVID-19. Nonetheless, MGM Growth Properties' main tenant, MGM Resorts (NYSE:MGM), has continued to pay rent. Management expects those payments to continue now that casinos are reopening across the country.
A yield of 6.5% isn't the highest you'll find for a REIT, but MGM Growth Properties' unique assets make it a dividend stock to own. The gambling assets are highly regulated, which limits competition, and Las Vegas real estate is some of the most sought-after in the world. Gambling results may be down in 2020 due to COVID-19, which would impact cash flow slightly. Still, this is a steadily growing business that should drive steady growth in the dividends over the long term.
Gamble on this (suspended) dividend long-term
Las Vegas Sands, another gambling outfit, is my next pick. It's a little odd to include this list because the dividend is currently suspended to save cash amid coronavirus-related shutdowns. But it's the long-term dividend potential, not the short-term payout, that makes me think Las Vegas Sands is a great high-yield dividend stock.
Before COVID-19 hit, Las Vegas Sands' dividend yield was 6.1% and growing annually. Las Vegas Sands has so much cash from its casinos (measured by EBITDA) in the U.S. and abroad that paying a large dividend is almost the only thing it can do with all of it.
EBITDA and free cash flow will certainly be down in 2020, but Las Vegas Sands should return to relatively normal operations in the next year or two. The company has the enviable position of owning the largest market share of gambling revenue in Macao and Singapore, which is why it has such strong cash flow. When Asia starts traveling and gambling again, this dividend is going to come back as strong as ever.
Brookfield Renewable Partners
Renewable energy is the fastest-growing segment of the energy sector. One of its biggest challenges is financing projects to get them built. That's where Brookfield Renewable Partners comes in, buying projects that generate cash flow over decades and often coming with contracts to sell electricity to utilities over a decade or more.
Brookfield Renewable Partners uses the cash flow from projects to pay a dividend, which currently yields 4.1%. It's expecting to grow the dividend payment by 5% to 9% organically each year. This boost reduces reliance on issuing new stock and debt to fund project acquisitions, which might otherwise leave the company without options if their stock drops.
Yieldcos have had their ups and downs over the years, but Brookfield Renewable Partners has a long history of generating value for shareholders that is likely to continue.
Dividends that are built to last
All of these stocks have large and stable businesses in their industries that will keep them generating cash for many years to come. For investors, I think these are dividends worth betting on.