Dividend stocks can help boost your income and fight inflation. But you want to be careful not to take on excessive risk and invest in stocks that pay an excessively high yield that might not be sustainable in the long run.
Three stocks that offer a good mix of high yield and low risk are Innovative Industrial Properties (IIPR 0.06%), Enbridge (ENB 0.68%), and Village Super Market (VLGEA 1.24%). In the past three months, their share prices have been falling, and that makes these already attractive income investments look like even better buys today.
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1. Innovative Industrial Properties
Of the stocks listed here, Innovative Industrial Properties has taken the biggest hit over the past three months in its share price. That could be due to the combination of being in the cannabis sector, where there has been no progress on federal legalization, and the fact that the stock wasn't cheap to begin with. From a price-to-earnings (P/E) multiple of more than 60 just a few months ago, Innovative Industrial Properties has fallen to a P/E just above 40 now.
However, the stock is much safer than its recent volatility suggests. The company is a real estate investment trust (REIT), and so it operates on high margins. Its funds from operations (FFO) over the nine-month period ending Sept. 30, 2021, totaled $119.6 million, accounting for more than 80% of the $145.6 million it generated in revenue over that time. On a per-share basis, its diluted FFO was $1.62 for the most recent quarter.
As a REIT, it needs to pay out 90% of its earnings back to shareholders. Today, its quarterly dividend is $1.50, which is more than 92% of its FFO. That's a high percentage, but Innovative Industrial Properties is growing, and its profits will likely only get better in a fast-growing marijuana industry. Its business focuses on sale-leaseback agreements with growers to provide them with an influx of cash to scale their businesses. In return, it gets a stable stream of recurring cash flow. From just $15 million in sales in 2018, the REIT has grown to $183 million in revenue over the trailing 12 months.
With the drop in share price, its dividend yield is up to 3.3% now, which is well above the S&P 500 average of 1.3%. This is an excellent opportunity for investors to buy not just a high-yielding stock but one that also has tremendous growth potential as the cannabis industry expands and as more growers enter the business.
Image source: Getty Images.
2. Enbridge
Enbridge's stock hasn't fallen over a cliff in the past few months, but it's still a great buy today for multiple reasons. The first being its yield of 6.6%, which is easily the highest one on this list. And with Enbridge, you're likely to see that already high payout grow since the stock is a Dividend Aristocrat, having raised its payouts for more than 25 years in a row.
In 2022, it projects its distributable cash flow (a metric that oil and gas companies often rely on instead of net income to assess their performance) to top more than 15 billion Canadian dollars ($11.8 billion), ranging between CA$5.20 and CA$5.50 per share. That's well above the CA$3.44 that it expects to pay out in dividends this year.
Besides its safe dividend, another solid reason to invest in the pipeline company is that the oil and gas sector could heat up this year, as oil prices continue to soar. The higher prices will give producers incentive to pump more and lead to more throughput for Enbridge.
At just 18 times earnings, the stock is lower than it has been historically (in years past, multiples of 25 weren't uncommon), and there's tons of value in Enbridge today. It's one of the safer investments for your portfolio not just for 2022 but over the long term, too.
Image source: Getty Images.
3. Village Super Market
Village Super Market is a good, boring dividend stock to own. It runs grocery stores in the Northeast, with the bulk of its ShopRite-brand locations in New Jersey. What makes Village Super Market appealing, especially in an inflationary environment, is that grocers have more leeway in raising their prices than other retailers do since their products are essential.
That being said, the company still keeps its prices low; gross margins aren't terribly high at just 28% of revenue. It also doesn't bank a whole lot of profit, with a net margin that's regularly around 1%. But despite the thin margins, Village Super Market has consistently been in the black in each of the past four quarters.
And with a trailing-12-month diluted per-share profit of $1.64, it's in an excellent position to continue paying its dividend, which totals $1 per share annually. Although investors likely won't double or triple their investment in Village Super Market, the stock can be a safe place to park your money right now, with its 4.6% yield.
