Investors jumped on capital appreciation last year, and it may not be a bad idea to put a little more weight on income investing in 2021. Stocks with decent payouts offer a trickle of healthy distributions, and if you're buying the right investments, you'll be rewarded with capital appreciation along the way.
AT&T (T -1.54%), Cisco Systems (CSCO -3.89%), and Realty Income (O -3.23%) are three high-yielding investments. They're each yielding at least 3%, but it's not just the dividend income that matters. Let's see why I own all three of these stocks, and why I believe you should, too.
The chunkiest payout here belongs to AT&T. The telco giant is yielding 7.2%, and it's more than sustainable. The distributions amount to just a little more than half of the $26 billion that AT&T expects to have generated for all of 2020. We'll have the final haul when it posts its fourth-quarter results on Wednesday morning.
AT&T isn't perfect. It has some sluggish parts, including the fading legacy wireline business and its DirecTV segment, which is facing a wave of cord-cutters. However, its largest business -- its market-leading wireless arm, which generates 42% of the revenue -- is continuing to deliver through the pandemic. Its recent WarnerMedia acquisition at 18% of the top-line mix is a content powerhouse that brings HBO, CNN, and DC Comics into the telco's fold.
If you think the 7.2% yield is impressive, it could go higher, even if the stock simply marches in place. AT&T is a Dividend Aristocrat that has boosted its payout rate for 34 consecutive years. It's not kicking off 2021 with a hike, but it has three more distributions to push the streak to 35 years of of annual increases.
Cisco has come a long way since leading the charge of the dot-com bubble two decades ago. It's no longer a rock star but continues to be a major player in providing the routers, switches, and related networking gear to keep businesses and homes connected.
Financially speaking, it's not as glitzy as the tech darlings that ruled in 2020. Cisco is a market laggard and has posted four consecutive quarters of year-over-year declines in revenue. Despite the modest retreat, it did beat Wall Street profit targets in each of those four quarters. Analysts also see a resumption of growth in the fiscal quarter that starts next month. The stock's 3.2% yield is the lowest of the three picks here, but it's high for a tech stock that also happens to be a prime turnaround candidate.
AT&T isn't the only Dividend Aristocrat here. Realty Income is one of just three real estate investment trusts or REITs that have the same distinction of coming through with at least 25 years of hikes. It's currently yielding 4.8% and is a popular choice for income investors because it actually cuts monthly dividend checks.
However, here's fair warning that 85% of Realty Income's portfolio consists of retailers. The REIT tries to diversify its risk by dealing with 600 different tenants across more than 50 different industries. It also leans on chains that address services, non-discretionary retail, or discount retail. Keeping 95% of its retail portfolio in those three categories is helping it skirt the implosions that some of the more traditional retail concepts are going through, but there are a few slightly bothersome tenants, including fitness centers and movie theaters, which will need the vaccination process to play out swiftly and effectively to turn their fortunes around.