Income investors are always looking for dividend stocks with high yields that can provide them with reliable cash flow. Retirees in particular often seek stable companies that are only likely to offer modest growth, but have predictable dividends. In other cases, income investors with a higher tolerance for risk may prefer to buy shares of businesses in distressed industries while they're down, locking in great long-term yields -- assuming they recover.
These five stocks all offer high yields at their current share prices, but not all will be suitable for every income investor. Consider the merits and caveats of each before deciding whether to add it to your stock portfolio.
Medical Properties Trust
Medical Properties Trust (MPW -0.22%) is suitable for income investors who prioritize stability but also seek opportunities for share price appreciation. The real estate income trust (REIT) owns nearly 400 healthcare properties in the U.S., Europe, and Australia, most of which are general acute care hospitals or inpatient rehab facilities. Demographic trends suggest that demand will continue to grow for healthcare services, which are also fairly resistant to economic cycles. This business is by no means guaranteed, but it displays all the hallmarks of a company with cash flow stability.
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Medical Property Trust's current dividend yield of 4.97% is high, and its payout looks sustainable. The REIT distributed $0.27 per share in the most recent quarter, which was 87% of the adjusted funds from operations (FFO) reported for that period. Growth through the acquisition of additional facilities could lift income even higher, but this is already an attractive investment.
Verizon
Verizon Communications (VZ -0.68%) is the largest telecommunications provider in the U.S., with nearly 100 million wireless customers. Large wireless providers are relatively stable -- their businesses are unlikely to be drastically disrupted by either competitors or economic cycles. It's extremely expensive to purchase wireless spectrum and build out the network infrastructure required to compete in the space, and that high barrier to entry favors incumbent players.
And even during difficult economic times, people are unlikely to give up their cell phone service. As a result, this is a stable income investment with some revenue growth potential due to the 5G rollout.
At current prices, Verizon stock yields 4.2% with a 56% payout ratio, indicating that the company should easily be able to sustain its current dividend. As one of the early leaders in 5G, Verizon will be well-positioned to grow its revenues by serving the rapidly increasing number of connected devices. This is unlikely to be a big growth story, but it's a great income play with clear (albeit modest) upside potential.
Orange
Orange SA (ORAN -0.80%) is a French telecom provider, and its American depository receipts (ADR) trade on U.S. exchanges. The company has over 260 million customers in Europe, Africa, and the Middle East. The bull narrative for Orange is similar to that of Verizon. It is among the global leaders in telecom services, which is likely to remain a fairly stable business, and it should enjoy some modest benefits from the gradual adoption of 5G. Its revenue fell slightly in the first half of 2020, but returned to slow growth in Q3, despite the highly volatile economic circumstances related to the COVID-19 pandemic.
At current share prices, Orange's dividend yields a healthy 5.93%, and its payout ratio is only 52%. Giving that it's trading at a forward P/E ratio of only 9.3, there seems to be downside cushion built into the price in the event of competitive issues or foreign currency fluctuations that adversely impact U.S. investors.
MPLX LP
MPLX LP (MPLX 0.26%) is a master limited partnership (MLP) created by Marathon Petroleum (MPC 0.19%) to own and operate that company's midstream assets such as pipelines, terminals, storage for crude oil and natural gas. More so than the previously discussed companies, MPLX's high dividend comes with a fair degree of risk. The lower crude oil prices that have prevailed during the past year have caused turmoil in the energy sector, and production shutdowns combined with reduced demand due to COVID-19 have led to a decrease in the volumes handled by midstream companies.
MPLX's dividend yields 12.65% at current share prices, which suggests that the market might be expecting the company to reduce the size of those payments. Given that its payout ratio relative to earnings exceeds 100%, that's a logical expectation. If energy companies continue to struggle, MPLX's operations will certainly be impacted, so this risk is real for shareholders.
However, the company's revenue has been roughly flat year over year through the first nine months of 2020, and it reported net profits for the third quarter. Dividends paid in 2020 have also been roughly equivalent to free cash flow through three quarters, so even the high payout ratio could be misleading. If the energy sector rebounds and pushes MPLX earnings back on course, this stock could deliver a huge windfall for income investors.
Sunoco
Sunoco (SUN -0.11%) is a well-known auto fuel retailer that also refines and markets petroleum products and specialty chemicals. This MLP is in a similar position to MPLX. Sunoco pays a dividend the currently yields 11.55%, but management might have to dial the payout back if the oil sector stays distressed.
However, the company reported a return to profits in the third quarter of 2020, and its free cash flows were well above its distributions. Analysts' estimates for 2021 cover a wide range of possibilities due to the uncertainty in the energy sector, but the MLP's dividend could be sustainable if it can meet consensus forecasts. Buying Sunoco shares would essentially be a bet on the sector as a whole, but it could provide an excellent long-term payoff to income investors who don't mind the risk.
