Dividend stocks are an important tool for income investing. Surveying the market for stocks with high dividend yields, stable business models, and growth opportunities can improve income flows over the long term. This is important for retirees or anyone who prefers to have income returns that can be redeployed into other opportunities.
The following three stocks embody the above characteristics and are great options for income investors.
1. Gilead Sciences
Gilead Sciences (GILD -2.70%) is a pharmaceutical stock that is on pace to exceed $20 billion in drug sales this year. Gilead holds a strong presence in the HIV treatment space, with a portfolio that includes Biktarvy, Descovy, Genvoya, Odefsey, and Truvada. The company also develops drugs for viral diseases, inflammatory conditions, and oncology. Veklury has been another major seller for Gilead in 2020 due to its use in treating COVID-19.
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Gilead sales declined several straight years from its $33 billion peak in 2015 because its hepatitis C drug was so effective that it meaningfully shrank the addressable market. However, 2020 is on track to mark the second consecutive year of expansion thanks to the bump from coronavirus drug Veklury and the acquisition of effective cancer drug Trodelvy. Both of these catalysts should apply in 2021, as well as the boost from the acquisition of the only hepatitis D treatment approved in Europe, Hepcludex.
With uncertainty around the severity and spread of COVID-19 moving forward, most expectations are for relatively flat performance in revenue and earnings next year. Still, the stock kicks off a very attractive 4.77% dividend yield and trades at a forward P/E ratio below nine. Investors should be aware of a payout ratio above 200%, but free cash flow above $8 billion in the trailing 12 months should be enough to sustain dividends flowing to investors.
2. Medical Properties Trust
Medical Properties Trust (MPW -0.22%) is a real estate investment trust (REIT) that owns 385 hospital facilities in 34 U.S. states, six European countries, and Australia. The REIT's top line has expanded 16.4% annually on average as the company acquires more cash-generating facilities, and the nature of demand for hospital services provides a relatively stable set of tenants and cash flows in the future. Telehealth may become a rising force that disrupts outpatient care, but acute care facilities and inpatient rehab centers are less likely to be derailed. As such, Medical Properties Trust is an attractive play for both growth and stability in the healthcare market, with a strong dividend opportunity.
MPW shares carry a 4.97% dividend yield, which is well above the S&P 500 average of around 1.6%. The company reported funds from operation (FFO) per share of $0.31, so its $0.27 per share dividend was more than covered by operating cash flows. With further growth anticipated next year, this looks to be a nice yield opportunity that has long-term demographic and economic catalysts to support stability. Retirees should love that combination.
3. CubeSmart
CubeSmart (CUBE -1.76%) is a REIT that owns and operates self-storage units for commercial and residential customers, and it is considered to be in the top three of that market by square footage owned. The company has delivered promising results through the economic crisis caused by COVID-19, and its occupancy rate has actually increased 180 basis points above the third quarter of 2019. This shows that self-storage is certainly not immune to economic cycles, but it is still a resilient business that can generate relatively stable cash flows in different operating environments.
CubeSmart's business has been growing 8% annually on average, and it sports an attractive 3.92% dividend yield. The company's strong balance sheet and recent refinancing of existing debt put it in a position to achieve further growth via the acquisition of new properties. The REIT's $0.33 per share quarterly dividend was only 75% of its $0.44 adjusted FFO per share, indicating that CubeSmart is generating more than enough cash to sustain or even grow its dividend. Buying CubeSmart shares now provides investors an attractive dividend yield today with the opportunity for growth in the future.
