Dividend stocks can be a great source of income for retirees. But that doesn't mean retirees are the only investors who should consider dividend-paying stocks. From 1989 through 2019, dividend-paying stocks generated an annual return of 11.6% (when dividends were reinvested) versus non-dividend paying stocks, which returned 8.3%, according to a report by Principal Street Partners. Dividend stocks also outperformed the Russell 1000 index, which returned 10.1% over the same time.
Dividend stocks can be a great way to generate income and invest in sound businesses. That's because companies that pay out dividends consistently also tend to have good discipline and cash management skills to ensure shareholders receive a dividend payment.
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One high-yield dividend stock that should be on your radar is AllianceBernstein (AB 0.26%). That's because the investment-management company has displayed an impressive history of growing its revenue streams, which allows it to pay out a high dividend yield.
It has diversified and growing revenue streams
AllianceBernstein is a financial master limited partnership (MLP) that manages investments and provides investment research. The company makes money on the investments it manages for clients from fees on its total assets under management (AUM). It also receives fees for its research. The partnership's business includes managing money for equity strategies -- or stock investments -- on behalf of its clients. It also provides active management for fixed-income strategies -- bond and debt investments, along with other investment management activities.
This MLP has a wide range of customers. It serves institutional investors -- pension plans, foundations, insurance companies, and central banks worldwide. It also serves retail clients and high-net-worth individuals, trusts, and others.
By the end of 2020, AllianceBernstein had $686 billion in AUM. Of this, 46% is related to its institutional clients, 39% to its retail clients, and the remaining 15% to its private wealth clients. With AUM spread across multiple clients, its revenue streams are also diversified. Retail clients generate nearly 50% of its revenue, and 24% comes from its private wealth clients. The remainder of its revenue comes from institutional clients and its research segment.
From 2015 through 2020, AllianceBernstein has grown its net income at a steady 8.2% compound annual growth rate. One driver of growth for the MLP is its focus on responsible, sustainable investment. Since 2015, it has seen its AUM on these investments grow at an impressive 36% compound annual growth rate. Another key driver of growth has been its investments in the Asian-Pacific region. These investments have $130 million in AUM, with a fee base that has grown at 13% compounded annually since 2015.
Its tax structure requires it to pay out dividends
Because AllianceBernstein is an MLP, it is considered "grandfathered" in to tax rules that give it a break on federal income taxes. The company is a publicly traded partnership for federal income tax purposes. This means that the company is not subject to corporate income taxes at the federal or state level.
To maintain this tax status, the company must continue to do business in investment management and research. If the company were to branch out into other businesses, it could lose this tax status. For this reason, the company is laser-focused on what it does.
Another benefit of this tax structure is that AllianceBernstein pays out all of its cash flow to shareholders through dividends. This means you can always count on getting a dividend distribution from the partnership, as long as it brings in cash flow. As an investor, the nature of this company requires that you file a separate tax form when filling out your taxes that documents this unique income disbursement arrangement, and you pay a different tax rate on that income.
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30 years of high-yielding dividend payments
Over the past three decades, AllianceBernstein has paid out a dividend consistently (partly because it is required to as an MLP). The partnership has seen its dividend yield average 7.35% over that time. It currently delivers investors a yield of 7.14%. The partnership has done a solid job of building up its AUM.
AllianceBernstein has done a solid job of growing its business and expanding through new offerings, including ESG investments and investments in fast-growing Asian markets. Over the past five years, AllianceBernstein has grown AUM by an 8% compound annual growth rate. Not only that, but its tax structure gives it an advantage over other companies in the same space. Through its partnership model, the company can avoid most taxes and shareholders benefit -- making this one high-yield dividend you can trust.
