Not many know what a powerful wealth compounding machine dividend stocks are. The S&P 500 index has generated roughly 1,200% gains in the past three decades. With reinvested dividends, those gains more than doubled to over 2,400%, proving time and again why dividend stocks are so worthy of your money.
Sadly, many investors end up getting trapped in unsafe high yields. While you must never chase yields blindly, there's nothing like it if you can invest in dividend stocks that support their high yields with stable and growing dividends. The four ultra-high-yield dividend stocks below -- with yields from 5% to 8% -- fit the bill and have solid wealth-building potential.
Get a dividend raise every quarter
If you believe the worst is over for the economy and businesses are primed to bounce back, time is ripe to buy W.P. Carey (WPC -0.74%) shares.
That's not to say W.P. Carey will stumble when the going gets tough -- that's unlikely. Even in the exceptionally challenging pandemic year of 2020 when most business properties were shut, the company managed to collect most of its rent. W.P. Carey is a real estate investment trust (REIT) that buys properties and leases them out to companies across industrial, warehouse, office, retail, and self-storage spaces under long-term agreements with built-in annual rent escalators.
As of the end of June 30, 2021, except U-Haul and Marriott International, which each had lease terms of around 2.4 to 2.8 years, all of W.P. Carey's other eight largest tenants had lease terms longer than seven years, going up to 22.
With the economy reopening, W.P. Carey is back to pursuing growth opportunities. It invested nearly $1 billion in the first half of 2021 and raised its full-year adjusted funds from operation (FFO) guidance range to $4.94-$5.02 per share versus $4.74 per share it earned in 2020. Its tenants are growing, too. Its largest tenant, U-Haul, for example, just announced a new three-story moving equipment and self-storage unit center in Carlsbad to meet rising demand.
With management targeting another $500 million to $1 billion investment this year, W.P. Carey's FFO should continue to rise. As FFO grows, so should dividends. W.P. Carey has increased dividends every year since going public in 1998 and raises dividends every quarter, so you get a nice income bump every three months. With the stock losing some ground in recent weeks and yielding 5.5%, W.P. Carey is a great addition to an income investor's portfolio.
An underrated stock with solid potential
My next pick is a REIT as well, but in the high-potential healthcare sector. The COVID-19 pandemic has brought healthcare to the forefront, making it an opportune time for companies that own healthcare facilities to grow.
Medical Properties Trust (MPW -2.94%), for example, announced investments worth $2 billion just between its first and second quarters, taking its total investments so far this year to nearly $3.6 billion. That's equivalent to the entire investment the company made in 2020.
Here are some notable numbers about Medical Properties Trust you must know:
- It owns hospitals in 32 states in the U.S., as well as in Europe, Australia, and South America.
- It owns more than 440 facilities with roughly 47,000 licensed beds.
- 72% of its facilities specialize in general acute care that requires short-term stays, such as surgery, acute medical conditions, or injury. Other hospitals focus on behavioral health, rehabilitation, and long-term care.
- Today, Medical Properties Trust is the second-largest nongovernment owner of hospitals in the U.S.
- In 2020, it clocked 490,000 admissions, 300,000 surgeries, and 2 million emergency visits in the U.S. alone.
As incredible as those numbers are, nearly all of Medical Properties Trust's contracts have in-built annual escalators for inflation. That, coupled with aggressive acquisitions, has consistently driven the company's AFFO higher, enabling it to increase dividends for the past eight years. With the company aggressively expanding its portfolio, investors in this 5.5%-yielding stock shouldn't be disappointed.
These solid dividend growth stocks won't fail you
The energy sector offers some of the most alluring dividends right now, but midstream oil and gas dividend stocks are among your safest and best bets. Pick between Enterprise Products Partners (EPD -1.49%) and Enbridge (ENB -0.33%).
As midstream companies, Enterprise Products and Enbridge primarily store and transport crude oil, natural gas, and natural gas liquids (NGLs), and therefore earn income mostly in the form of fees under long-term contracts that are fulfilled regardless of how oil prices behave. That means their cash flows are pretty stable and even predictable, which is hard to find among commodity stocks. The two are among the largest pipeline operators in the U.S., Enterprise Products is also the world's largest exporter of liquefied petroleum gas (LPG).
The best part is the dividends these two stocks offer and the kind of returns those dividends have generated for patient shareholders over the years. While Enterprise Products has increased dividends for 22 straight years, Enbridge has attained Dividend Aristocrat status with 26 years of consecutive dividend increases. Enbridge stock yields 6.6%, and Enterprise Products Partners yields 8.1%.
These two are well-run companies with strong balance sheets and project pipelines, and are also growing their low-carbon businesses. Enbridge, in fact, just made a big growth move by agreeing to acquire privately held Moda Midstream Operating for $3 billion. The deal, expected to close later this year, should not only expand Enbridge's export capacity along the Gulf Coast, but also be immediately accretive to its cash flows. That should put to rest concerns about the sustainability of Enbridge's dividends.