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2 Stocks to Buy with Dividends Yielding More than 6%

By Dave Kovaleski – Sep 2, 2021 at 6:01AM

Key Points

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They both produce good dividend income with the potential for solid long-term returns.

If youʻre an income investor, you want a stock with a strong dividend yield -- that is, the amount of its cash payouts as a percentage of its share price. The average dividend yield is south of 2%, so anything around that number, or over, is considered good.

A dividend yield of 6% is considered extremely high, and finding good stocks around that level is not easy. In fact, a yield that high is often a red flag that the company may not have the earnings power or cash flow to keep it up. Here are two dividend stocks with yields over 6% that bear watching. Both look like good buys for income investors.

A street sign that says "Yield."

Image source: Getty Images.

AGNC: 8.8% yield

AGNC Investment (AGNC -1.32%) is a mortgage real estate investment trust (REIT), and the first thing to know about REITs is that they are required by the Securities and Exchange Commission to distribute 90% of their annual taxable income in dividends. So, REITs in general are always going to have high yields.

As a mortgage REIT, AGNC buys mortgages and mortgage-backed securities and earns income from the interest on the investments. Most of its portfolio is in mortgage-backed securities that are backed by federal government agencies and protected from default. These agency mortgages struggled in the second quarter, following a strong first quarter. But mortgage rates are expected to rise in 2022 and beyond, according to economists, and thatʻs good for mortgage REITs like AGNC -- and its dividend.

The company has a high dividend yield of 8.8% at Wednesday's closing price, and it pays out a dividend monthly, not quarterly like most stocks. It has a monthly payout of $0.12, which calculates out to $1.44 per year. It also has a manageable payout ratio of 51%. AGNC did lower its monthly dividend last year at the height of the pandemic lockdowns, from $0.16 to $0.12, but it has maintained that $0.12 dividend since.  The stock price is up about 4.6% year to date and is in good shape to start moving that payout back up.

Artisan Partners Asset Management: 7.1% yield

Artisan Partners Asset Management (APAM -1.53%) is a Milwaukee-based boutique asset manager whose stock price is up nearly 4% year to date and 31% over the past year. Artisan has about $175 billion in assets under management, which is up 44% year over year and 7% from the first quarter. It offers 20 funds, all actively managed, from across the spectrum -- including growth, value, international, global, emerging and developing markets, small-cap, mid-cap, and credit funds. Last year, it had net inflows of $7.1 billion into its funds, and the momentum has continued. The firm had record quarterly revenue of $305 million in the second quarter of this year and net income of $88 million, up 91% year over year and 14% from the first quarter.

Over the past five years, annual net income has increased by 14%, and that is due to Artisanʻs excellent investment performance. Out of its 20 portfolios, 16 have beaten their benchmarks by 150 basis points (that is, 1.5 percentage points) or more annually, after fees.

Artisan has been very generous in returning its earnings back to investors in the form of dividends. This quarter it increased its quarterly dividend to $1.00 per share, up from $0.88. It also pays out a special dividend annually based on available cash at the end of the year. Artisan does have a high payout ratio of 72%, but it has demonstrated earnings consistency and has high margins, lots of cash, and manageable debt. Keep an eye on that payout ratio, but overall, this is a good stock overall and a solid income stock, to boot.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Artisan Partners Asset Management Stock Quote
Artisan Partners Asset Management
APAM
$34.16 (-1.53%) $0.53
AGNC Investment Corp. Stock Quote
AGNC Investment Corp.
AGNC
$9.69 (-1.32%) $0.13

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

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