Getting paid year in and year out is the core of dividend investing, but you need to make sure you don't get lured in by story stocks that burn out. The real goal is to find companies that have proven themselves over time and have a certain staying power. That's exactly what you'll find at high-yielding real estate investment trust (REIT) W.P. Carey (WPC -2.23%), industrial giant 3M (MMM 0.09%), and fast-growing utility NextEra Energy (NEE -0.25%).
1. Diversification personified
W.P. Carey's dividend yield is roughly 6% today. The real estate investment trust has increased the dividend every year since its 1998 IPO, meaning roughly 23 years and counting. In a world where the S&P 500 Index, using the SPDR S&P 500 ETF as a proxy, yields less than 2%, this is a very attractive proposition. But it gets even better when you look under the hood.
W.P. Carey is what's known as a net-lease REIT, which means that it owns single-tenant properties where the tenants are responsible for most of the operating costs of the assets they occupy. It's generally looked at as a fairly low-risk approach in the sector.
A lot of REITs use the net-lease approach. What separates W.P. Carey, though, is its diversification. It spreads its portfolio across the industrial (24% of rents), warehouse (23%), office (23%), retail (17%), and self storage (5%) sectors, with a sizable "other" category rounding things out. Furthermore, it generates roughly 37% of its rents from outside of the United States. This level of diversification is pretty unique in the REIT space, and helped W.P. Carey sail through the coronavirus pandemic with high 90% rent collection rates.
If you are looking for a big yield from a company that has proven its model can survive troubled times, W.P. Carey could be a great option for you.
2. Relative value
Next up is industrial giant 3M, which has increased its dividend annually for an incredible 62 years. That said, the current yield is about 3.4%, which may not interest investors looking to maximize current income.
But there's a wrinkle here: The dividend is toward the high end of the company's historical yield, and hasn't been this high since the 2007-to-2009 recession. So it actually looks like today is a pretty compelling opportunity to buy 3M at a reasonable price.
That's pretty notable given the company's impressive history -- which brings up the actual business. 3M breaks its operations down into four major categories: safety & industrial (36% of revenue), transportation & electronics (27%), healthcare (26%), and consumer (the rest). Underneath each of those high-level categories are hundreds, if not thousands, of products that all make use of innovative and high-tech solutions, usually proprietary to 3M, created in-house, and spread across multiple product categories.
Indeed, innovation and research has long been a cornerstone of the company's approach. And that is what's really most attractive here: Research and development have kept the giant conglomerate at the cutting edge of the industrial sector for years, and should keep it there for years to come.
The fly in the ointment today isn't the coronavirus. In fact, 3M is handling that hit in relative stride. The big concern is on the legal front, where the company is facing product and environmental lawsuits. However, it is large and financially strong, and should be able to weather the cost of these headwinds. If you can look past that issue to see the long-term appeal, this relatively high-yielding stock could be for you.
3. The speed demon
The last name here is NextEra Energy, which is the largest utility in Florida. That's a great state to operate in because its population has been growing, which means more customers for the electric utility to serve. The trend of people moving to warmer climates is expected to remain in place, too, so NextEra can look forward to even more customers in the future. That's the core that backs the company's 1.9% dividend yield.
That wasn't a typo -- NextEra Energy's yield is a miserly 1.9%. That's pretty low for a utility. But this isn't your typical utility, because it layers a large and fast-growing renewable power business on top of its boring utility core. In fact, the company claims to be the largest solar and wind provider in the world. And it has plans to build an additional 13 gigawatts of renewable power, which would increase its generating capacity by more than 50%. That growth, plus its slow-growing utility business, is expected to keep earnings expanding by 6% to 8% through 2023. The dividend, meanwhile, is projected to increase by 10% a year through "at least" 2022.
Ten percent is an incredible dividend growth rate for a utility, which makes this a potentially attractive option for dividend-growth types. The fact that it is in the thick of the clean energy shift taking place globally is the icing on the cake. The key here, however, is that NextEra Energy is no flash in the pan -- its dividend has been increased annually for more than a quarter century, which means investors are getting both growth and staying power.
One should fit
Whether you like W.P. Carey, 3M, or NextEra Energy will really depend on the type of dividend investor you are. Those seeking to maximize current income will like diversified REIT W.P. Carey. Value-focused investors will appreciate out-of-favor industrial giant 3M. And those looking for dividend growth will definitely find NextEra energy attractive. If you take the time to dig in here, at least one of these reliable dividend payers should tickle your fancy, and highly likely keep paying you for the rest of your life.