A stock with a high dividend yield can be enticing, but it's important you ensure the dividend is backed by a steady, even rising, payout and is sustainable to avoid the risk of falling into value traps that high-yield stocks can sometimes turn out to be. High-yield stocks with an established dividend track record and growth catalysts that could drive dividends even higher are best bets, just like the three following stocks that offer yields as high as 5% or more.
A proven way to earn from real estate
Despite a solid 5.5% yield that's backed by growing dividends, W.P. Carey (WPC +1.31%) is an underrated stock. Investors in W.P. Carey were worried about how the company will ride out the COVID-19 pandemic storm as it brought commercial activity to a grinding halt. W.P. Carey, after all, gets nearly 22% of its annual rent each from offices and warehouses, and nearly a quarter from industrial properties. The real estate investment trust (REIT), however, collected 95% or more rent through the pandemic last year.
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W.P. Carey has kicked off 2021 on a strong note as well, reporting 98% occupancy and collecting as much in contractual rent during the quarter. Moreover, the company is back on an acquisition spree after it slowed down spending during the pandemic, having already invested $765 million so far this year. In fact, a strong first quarter encouraged management to raise its full-year guidance for adjusted funds from operations (AFFO) to $4.92 per share from $4.86 per share at the midpoint, and it now expects to invest $1.25 billion to 1.75 billion in total this year. That represents 4% AFFO growth in 2021, and the investments should ensure growth momentum in FFO as well as dividends for years to come. W.P. Carey is, in fact, a great dividend stock, having increased dividends every year since going public in 1998.
An underrated dividend stock in renewable energy
The global renewable-energy market has grown rapidly in the past decade, and it's only likely to speed up. So a renewable-energy stock that doesn't just have a growing presence in the industry but also offers a high yield is definitely worth your attention. Clearway Energy (CWEN +0.60%)(CWEN.A +0.67%) slashed its dividend in 2019 after a key customer declared bankruptcy. The company, however, reaffirmed its stance on dividend growth last year and intends to increase annual dividend by 5% to 8% in the long run, with a goal to hit the upper end in 2021. That, coupled with its dividend yield of 4.9%, makes Clearway an attractive dividend stock.
Backing Clearway's dividend growth goal is its strong existing renewables portfolio and development pipeline. Clearway has over 8 gigawatts (GW) of renewable capacity, including wind, solar, and natural gas, and a development pipeline of nearly 10 GW. Clearway is a yieldco and is sponsored by U.S.-based infrastructure fund, Global Infrastructure Partners. So it doesn't really develop assets but instead, acquires long-life renewable energy assets and sells electricity under long-term fixed-price or regulated contracts. So they're steady cash-flow generators, which is the biggest reason Clearway Energy is confident about its capability to not just pay steady dividends but increase them regularly.
Given the massive potential growth in renewable energy and the backing of a big sponsor, Clearway Energy should find ample opportunities to grow and establish itself as a clean energy dividend-paying stock. The prospects are appealing, and so is the stock considering it's down nearly 14% year to date, as of this writing.
This oil dividend growth stock should benefit from a recovery
With the oil markets recovering, high-yielding energy stocks are back on investors' radar. Enbridge (ENB +0.00%) is a great dividend stock, having increased dividends every year for the past 26 years and yielding a hefty 7% today. That's not all -- Enbridge's dividend has grown at an impressive compound annual rate of 10% over the 26-year period, which is why shareholders in this oil and gas stock have been able to reap rich returns over the years despite the inherent cyclicality and volatility of the sector.
Importantly, Enbridge's dividend growth looks here to stay. Management expects its current multi-billion dollar growth plans could boost distributable cash flow (DCF) by compound annual growth rate of 5% to 7% through 2023, and intends to pay out 60% to 70% of DCF to shareholders. For 2021, Enbridge projects nearly 7% growth in DCF at the higher end of its guidance range.
Enbridge is among the top players in midstream oil and gas and owns and operates an extensive network of pipelines that currently store, process, and transport oil and liquids but could very well be used to store and transport cleaner fuels in the future as well. Enbridge is also investing in renewable energy to keep up with the changing times, which is another strong positive for this Dividend Aristocrat stock.
The best way to make money
W.P. Carey, Clearway Energy, and Enbridge don't just offer hefty yields but are committed to paying out regular dividends to shareholders, underpinned by growth in their businesses. That's exactly what you need to make money from high-yield stocks.
