Income investors are frustrated by low dividend yields in today's market, but there are still some high yields if you know where to look. With the S&P 500 average yield below 1.6%, many of the usual suspects and Dividend Aristocrats have been bid down by investors desperate for safe cash flow streams. A deep dive and a measured approach to risk reveal that the market has left some strong dividend stocks behind, even though they still have plenty of room to sustain and even grow their distributions to shareholders.

AbbVie

AbbVie (NYSE:ABBV) is the seventh-largest branded pharmaceutical maker in the world by revenue, with well-known drugs including Humira, Botox, Venclexta, and Imbruvica in its portfolio. It is also a Dividend Aristocrat with 47 consecutive years of dividend growth. It would seem that this status is in doubt because the market has allowed AbbVie's forward yield to hit 5%, while most of its peers pay substantially lower yields. 

AbbVie's heavy sales concentration in a small number of drugs has been a risk for the company for some time. Investors are worried about Humira's impending loss of exclusivity in the U.S. in 2023. It is AbbVie's top-selling product, and its U.S. sales accounted for 35% of the company's total revenue in 2020. The onset of generic competition usually cuts branded drug sales in half, and revenues generally fall more than 80% within the first few years after exclusivity is lost. This is no secret to the company's executive team, who are predicting falling sales for the year following the introduction of Humira's generic competition. 

Hands holding hundred dollar bills

Image sources: Getty Images.

However, AbbVie is bullish about its growth prospects in other categories, including cancer drugs, Skyrizi for plaque psoriasis, Ubrelvy for migraines, and Rinvoq for rheumatoid arthritis. The company forecasts a return to growth in 2025 and calls for 5% to 10% compounding annual sales growth for the next decade. If this narrative holds true, then AbbVie's dividend should be sustainable. The 180% payout ratio is misleading because accounting profits were drastically reduced by non-cash and non-recurring expenses. The forward dividend per share was only 49% of 2020's adjusted EPS, which provides a wide berth for temporary profit declines. If you believe in AbbVie's future portfolio, then this is a great opportunity.

CareTrust 

CareTrust REIT (NASDAQ:CTRE) owns 191 net-leased healthcare facilities for seniors, most of which are housing and centers for skilled nursing. The REIT's key growth drivers are demographics, strategic acquisitions, and reimbursement rates from Medicare and private insurers. Dividend investors prefer stable cash generators to riskier high-growth stocks, and CareTrust is well-positioned to be exactly that. The U.S. elderly population is expected to swell in the coming decades, so expect continued strong demand for the services provided by CareTrust's tenants.

Coronavirus created uncertainty across the real estate sector, and REIT performance has suffered over the past year as a result. Value investors often recognize these situations as opportunities, and that's certainly at play here. The pandemic will certainly cause ongoing disruptions for CareTrust, but the REIT collected more than 99% of contract rents in 2020. That's extremely reassuring. Underlining this stability, the company's earnings guidance calls for similar results in 2021. CareTrust pays a $1.00 annualized dividend per share, which is well within the $1.40 of FFO per share it reported last year. I see no reason to presume that the dividend will stagnate or shrink, so that 4.3% yield is enticing.

MPLX

MPLX (NYSE:MPLX) is a master limited partnership (MLP) that operates the midstream infrastructure assets for Marathon Petroleum (NYSE:MPC). This infrastructure includes pipelines, storage facilities, terminals, and processing equipment for crude oil and natural gas.

The entire energy sector experienced challenges in 2020 following a collapse in crude oil prices. The pandemic compounded existing issues by reducing demand for fuel and petroleum products, and many production facilities went offline or drastically reduced volume in response. The midstream portion of the sector is known for relative stability in operational cash flows, but lower volumes of crude transport hurt midstream revenues in 2020. As a result, MPLX share prices took a dive with the rest of the energy stocks, and they still haven't recovered as the rest of the market has. 

MPLX's earnings reports show a company that has weathered a storm and made some adjustments to stay stable. The MLP achieved a leaner structure through some cost reduction measures, and they scaled back growth capital expenditure plans to focus exclusively on high ROI projects. By the fourth quarter, the company's operating revenue was only down 5.8% year over year. MPLX was able to generate $4.3 billion in distributable cash flow, which is nearly 150% of the dividend. Company management is so comfortable with those cash flows that it is resuming a unit repurchase program, which is analogous to share repurchases you would see with regular stocks. The dividend looks high and sustainable, and MPLX is a candidate to appreciate if energy prices rise. The risks can't be casually ignored, but the upside potential looks great under the current conditions.

 

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.