Dividend income is a great way to grow your portfolio's value over time. But to minimize your risk, it's a good idea to spread your total investment across multiple industries. That way, you can earn a mix of both high and low dividend yields while also tapping into varying growth opportunities.
Three stocks that can help you accomplish this are CareTrust REIT (CTRE 1.00%), Lowe's (LOW -1.61%), and Enbridge (ENB -0.08%). From healthcare to retail to oil and gas, they can be safe pillars with which to hold up your portfolio for many years.
1. CareTrust REIT
CareTrust is a real estate investment trust (REIT) that invests in healthcare properties across the U.S. Its focus is on senior care, with more than 70% of its locations being skilled nursing facilities and another 18% falling into the categories of either assisted or independent living. As Baby Boomers retire and the demographics of the country get older, such facilities are likely to see an increase in demand in the coming years.
Even in the meantime, CareTrust makes for an attractive income investment. Because REITs are required by law to pay 90% or more of their profits back to shareholders as dividends, investors only need to worry about the company's profitability. REITs use funds from operations (FFO) rather than net income to assess their performance, because it excludes noncash items and expenses. And for the period ending June 30, CareTrust's FFO of $35 million was 9% higher than the $32 million it reported in the prior-year period.
The company also says it collected 100% of contractual rent from tenants during the period. There are multiple variations of FFO, but CareTrust estimates that its payout ratio is between 66% and 72%. That makes its relatively high dividend yield of 4.9% (well above the S&P 500 average of just 1.3%) look incredibly safe, and there's even room for it to increase.
For risk-averse investors, CareTrust could be a solid long-term pickup and a way to generate lots of dividend income.
Home improvement company Lowe's won't pay you a terribly high dividend -- its yield is just 1.6%. But what makes this stock attractive is that it offers growth opportunities plus some diversification outside of what you would get with healthcare stock CareTrust. During the pandemic, demand for Lowe's products has been rising with people taking on home improvement projects.
While the trend may slow over time, recent results suggest these new hobbies could be here to stay; when Lowe's reported its quarterly results Aug. 18, sales of $27.6 billion for the period ending July 30 were up slightly from $27.3 billion a year earlier. Its U.S. comparable sales were down just 2.2%, though they were 32% higher when compared with two years prior.
Year to date, the stock has outperformed the S&P 500, rising more than 28% while the index has increased by just 19%. While its yield alone won't provide you with a boatload of money, investing in the home improvement giant can still leave you with some solid returns over the long run.
The largest dividend yield on this list belongs to Enbridge. Its 6.6% payout is one of the best you'll find on the markets today -- without taking on significant risk. The company's pipelines are vital to the oil and gas industry. It's not as risky as investing in an oil and gas producer (for which oil prices could lead to significant volatility). And thanks to long-term contracts that give it lots of stability, Enbridge is an income stock you can count on for the foreseeable future.
Enbridge even raised its dividend this year by 3%, marking the 26th year in a row that the Dividend Aristocrat has bumped up its payout. Like CareTrust, it doesn't rely on net income alone to assess the strength of its operations. It uses distributable cash flow (DCF), an adjusted earnings calculation that is common in the industry. Enbridge expects that its DCF will grow annually between 5% to 7% until at least 2023. For 2021, it expects that its DCF will be at least 4.70 Canadian dollars per share, putting its payout ratio at about 71%.
The temptation for risk-averse investors may be to avoid oil and gas stocks altogether, but Enbridge is definitely one of the safer options out there. It has generated free cash flow of CA$2.6 billion over the past 12 months and looks as strong as ever. While I wouldn't call this a stock you can hold forever given the challenges facing the oil and gas industry over the very long term, Enbridge is definitely a solid income investment you shouldn't overlook and one that could be a pillar for your portfolio.