Dividends will always appeal to income investors and others who take a more conservative approach to the markets. Those payouts, especially when a company is able to increase them every year, serve as an enduring sign of the business's stability.
Moreover, bank accounts rarely pay more than 1% interest, well below the 1.3% average yield of the S&P 500. This situation only adds to the appeal of high-yielding dividend stocks with a history of payout growth.
If you're looking for stable businesses with long payout track records that appear set to continue, consider Chevron (CVX 1.31%), Innovative Industrial Properties (IIP) (IIPR +5.47%), and STORE Capital (STOR +0.00%).
Image source: Getty Images
Chevron
At first glance, Chevron's focus on fossil fuels may appear antiquated as the auto industry's focus is shifting toward electric vehicles. Although Chevron says it's interested in "advancing a lower carbon future," its profits still come from oil and natural gas. Nonetheless, according to the U.S. Energy Information Administration, petroleum and natural gas still account for 69% of the country's energy usage. This means Chevron can probably continue generating sufficient cash flows for years to come.
Moreover, it has made the necessary investments in finding reserves. This allowed the company to plan its Noble Energy purchase and pay $9.7 billion in dividends in 2020 despite reporting only $1.7 billion in free cash flow that year.
The company appears to have recovered from the energy price downturn of 2020 quickly. In 2021, Chevron brought in about $162.5 billion in revenue, 72% more than in 2020. Additionally, it reported a net income of $15.7 billion, which helped it produce a record $21.1 billion in free cash flow for the year.
With that much free cash flow, Chevron's $10.2 billion in dividend expenses was no trouble to cover. At $5.68 per share annually, the payout yields about 4.1% at current share prices. Also, it holds Dividend Aristocrat status with a 35-year streak of payout hikes.
Amid rising energy prices, Chevron stock has climbed by more than 50% over the last year. Despite that, it still trades at a price-to-earnings (P/E) ratio of about 17, only slightly higher than the 15 P/E ratio of ExxonMobil, which had a tougher time during the first year of the pandemic. Given today's high oil prices and Chevron's attractive dividend, this stock remains an attractive pick.
Innovative Industrial Properties
Innovative Industrial Properties was the first company to specialize in acquiring properties for the purpose of growing medical cannabis and leasing them to cannabis producers. Its status as a real estate investment trust (REIT) gives investors the best of both worlds.
Quince Insights believes the cannabis market will grow at a compound annual rate of 27% through 2030. Meanwhile, as a real estate company, IIP can profit from that growth without facing the Schedule I restrictions that burden cannabis growers. Though its dividend-paying track record is shorter than Chevron's (it made its first payout in 2017), the potential for medical marijuana alone makes it likely the industry will endure.
Moreover, many prospective clients come to IIP through its sale-leaseback program. Under this program, the REIT buys a grower's property and immediately leases it to the former owner. This gives the cannabis producer access to the capital it requires while IIP receives a new source of cash flow with a tenant already lined up. IIP owns just over 100 properties, 27 of which it acquired in 2021's fourth quarter.
The cultivation side of the cannabis industry has been facing troubles amid overproduction on the West Coast. Nonetheless, IIP's adjusted funds from operations (AFFO) grew by 90% year over year in the first nine months of 2021 to $126 million.
Furthermore, that AFFO covered the $95 million in dividends paid to common shareholders. At an annual rate of $6.00 per share, that yields 3.1% at IIP's current share price. The dividend also grew 21% over the last year, as the company hiked it in three of the last four quarters.
Finally, due to the cannabis glut, the stock has fallen by more than 35% from its November high. Nonetheless, with the industry set to grow at a rapid pace, investors will want to take advantage of this opportunity to buy shares of Innovative Industrial Properties in a bear market.
STORE Capital
STORE Capital is also a REIT -- one that's named after the property type it focuses on. "STORE" stands for "Single-Tenant Operational Real Estate."
Since its founding in 2011, the company has acquired almost 2,800 properties in 49 states, and boasts an occupancy rate of 99.4%. This covers properties for various uses, including educational facilities, stand-alone retail stores, and industrial-use properties.
These properties earned a weighted average cap rate (i.e., the rate of return on a property) of 7.7% in the first three quarters of 2021. Moreover, the size and diversity of its holdings increase its stability.
The interest in STORE of long-term-focused investor Warren Buffett speaks to its potential. Berkshire Hathaway owns about a 9% stake in the REIT.
STORE's financials make it likely Buffett will keep his shares. Its AFFO came in at $401 million (or $1.49 per share) for the first three quarters of 2021 -- up 15% year over year. The company also guided for AFFO per share of between $1.98 and $2.00 in 2021 and forecasts an AFFO per share range of $2.15 to $2.20 for 2022.
Those funds adequately covered its $300 million in dividend costs for 2021's first nine months. At $1.54 per share, shareholders currently earn a 5.1% yield. With STORE Capital selling at a discount of almost 20% from its price last summer, income investors may want to consider this stock.
