The current investment landscape is not very hospitable for income investors. But retirees who are looking for steady income via dividends can still find some gems out there. Real estate investment trusts (REITS) and utilities have historically been go-to sectors for investors looking for steady cash flows. Here are three solid businesses that yield more than 4%.
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A company that rents to the most recession-proof tenants
Realty Income (O -1.01%) is a REIT that specializes in stand-alone triple-net leases. This means that it owns stand-alone properties, and the tenant is responsible for many of the extra expenses like taxes, insurance, and maintenance. Many of these leases are long-term and have automatic rent escalators.
The reason this business model has performed so much better than many retail REITs is due to the type of tenant Realty Income pursues. It prefers to enter into contracts with recession-proof and essential businesses. Convenience stores, dollar stores, and drugstores accounted for 28% of Realty Income's revenue in 2019. For the third quarter, Realty Income collected 93% of its contractual rent, and 100% of its rent from investment-grade clients. Funds from operations has risen every quarter this year, which compares favorably to most retail REITs.
It's a Dividend Aristocrat and bills itself as the Monthly Dividend Company because that's how often it makes a cash distribution to shareholders. Despite the pandemic, Realty Income hiked its dividend in June, and has a yield of 4.6%.
A company that invests in government-guaranteed assets
AGNC Investment Corp. (AGNC -1.92%) is a mortgage real estate investment trust (mREIT), which is a different model than Realty Income. Instead of owning and renting property, AGNC invests in real estate debt. It buys residential mortgage-backed securities that are guaranteed by the U.S. government. In fact, the company is buying the same securities that the Fed is buying every day in the market. The government guarantee means that even if the borrower is unable to make the monthly payment, AGNC still gets its interest and principal payments. This doesn't mean the stock is risk-free, since liquidity issues and financing stress can emerge, as they did earlier this year. That said, AGNC made it through the tough period.
AGNC Investment is another monthly dividend payer, and its current yield is 9.5%. While the company did cut its dividend in response to difficulties in the market during the COVID-19 crisis, it turned out to be unnecessary in retrospect, and AGNC is a candidate for a dividend hike now that things have returned to normal. The stock also trades at a 9% discount to book value, which is another source of potential return.
A regulated utility that provides a steady, stable return
Duke Energy (DUK -0.28%) is a regulated utility that provides electric and natural gas services. Regulated utilities have historically been among the safest stocks out there. They are granted a monopoly in exchange for government regulation of the rates they charge.
The state regulators ensure that minimum service levels are met, and the company doesn't price-gouge. The regulators set a rate based on the company's assets and ensure it makes enough to cover its costs. As a result, the cash flows for these businesses are highly stable.
Duke Energy provides service in the Carolinas, Florida, Ohio, and Indiana. It hiked its dividend in August and yields 4.1%.
