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3 High-Yield Dividend Stocks That'll Make You Richer in 2021

By Sean Williams - Jan 25, 2021 at 5:51AM

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Dividend stocks have historically run circles around companies that don't pay a dividend.

If you want to give yourself the best possible chance to build wealth in the stock market, history is pretty clear that buying dividend stocks is your ticket to success.

Back in 2013, J.P. Morgan Asset Management released a report that compared the average annual return of publicly traded companies that initiated and grew their dividend between 1972 and 2012 to the average annual return on non-dividend stocks over the same period. The difference in returns was staggering. The dividend stocks yielded an average annual return of 9.5% over four decades, compared to just 1.6% for the non-dividend-paying stocks. In aggregate, this worked out to an 18-fold return difference in 40 years.

Ideally, income investors want the highest yield possible with the least amount of risk. Unfortunately, yield and risk tend to be correlated. Since yield is merely a function of payout relative to share price, a struggling or failing business with a plunging share price could lure unsuspecting income investors into a trap.

The good news is that there are high-yield dividend stocks (i.e., public companies with yields of at least 4%) worth buying. If your goal is to get richer in 2021, the following three high-yield stocks can help you get there.

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Walgreens Boots Alliance: 4% yield

Although the healthcare sector isn't known for its dividends, pharmacy chain Walgreens Boots Alliance (WBA -2.92%) is right on the cusp of high-yield territory with its 4% yield.

A big reason this yield is so high has to do with Walgreens' stock being clobbered over the past couple of years. Increased pharmacy competition, along with reduced foot traffic tied to the coronavirus pandemic, slowed its ability to grow. Thankfully, Walgreens is already knee-deep into a turnaround plan that should begin paying tangible dividends in 2021.

One part of Walgreens turnaround involves cutting operating expenses by $2 billion a year. But despite trimming the fat and selling its wholesale drug business to AmerisourceBergen for $6.5 billion, it's still investing aggressively in digitization. By streamlining its direct-to-consumer business, Walgreens is emphasizing a segment that offers sustainable double-digit growth.

Walgreens will also differentiate itself from online pharmacies through its partnership with VillageMD. This partnership will see between 600 and 700 full-service clinics set up across the U.S. in Walgreens' stores. Rather than catering to simple ailments, these full-service clinics can treat a wider gamut of concerns, cater to repeat patients, and provide a seamless organic boost to the company's higher-margin pharmacy.

Among value stocks, Walgreens remains one heck of a bargain.

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Annaly Capital Management: 10.5% yield

Get the drum out, because I'm beating it again for mortgage real estate investment trust (REIT) Annaly Capital Management (NLY -1.28%). Mortgage REITs haven't been popular with investors in nearly a decade, but the stars are now aligned for this industry to thrive.

The mortgage REIT operating model is a lot simpler than it probably sounds. Companies like Annaly borrow money at short-term lending rates and buy assets that offer higher long-term yields (e.g., mortgage-backed securities, or MBS). The difference between this higher-yield and short-term borrowing rate is the net interest margin (NIM). The bigger the NIM, the more money Annaly can make.

During the early stages of an economic recovery, the yield curve usually steepens. This means the gap between long-term and short-term yields widens. That's fancy speak for Annaly's NIM tends to widen. Since REITs pay out most of their earnings as a dividend in order to avoid normal corporate income tax rates, a beefier profit might mean an even larger nominal dividend.

As one late note, Annaly predominantly buys agency MBSs. Agency assets are backed by the federal government in the event of default. Though agency yields are lower than non-agency assets, this added protection allows Annaly to use leverage to its advantage in order to pump up its profit potential.

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Image source: Getty Images.

AT&T: 7.2% yield

The growth heyday might be long gone for AT&T (T -0.82%), but that doesn't mean this well-established company doesn't have a way to keep the needle moving in the right direction.

In 2021, the company's biggest growth driver is likely to be the rollout of 5G infrastructure. It's been a decade since American businesses and consumers had access to a significant upgrade in wireless download speeds. You can bet that enterprises and consumers will be upgrading their devices over the coming years to take advantage of these faster wireless speeds. Since data is the biggest margin driver within AT&T's wireless segment, increased content consumption just might be the organic growth shot in the arm that shareholders have long craved.

AT&T is also beginning to dig in its heels with regard to streaming. Following a slow launch, HBO Max recently saw its subscriber count jump by close to 50% in a matter of weeks to 12.6 million. Subsidiary WarnerMedia is sitting on plenty of proprietary content that can provide a spark for AT&T and more than offset cord-cutting losses tied to DirecTV.

Furthermore, with the company halting buybacks and selling non-core assets to reduce debt, management has made clear its intent to support the company's robust 7%-plus dividend yield.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
$20.61 (-0.82%) $0.17
Annaly Capital Management, Inc. Stock Quote
Annaly Capital Management, Inc.
$6.19 (-1.28%) $0.08
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
$40.96 (-2.92%) $-1.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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