A big mistake investors can make is assuming that a dividend is at risk of being cut simply because of the yield. Whether the yield is 2% or 10%, that alone isn't going to tell you how safe the dividend is. What matters are the underlying financials. After all, a dividend yield can rise sharply simply due to a falling share price.
Two high-yielding stocks that you should consider for your portfolio are Medical Properties Trust (MPW 2.26%) and Camping World Holdings (CWH 2.60%). Although their payouts may appear too good to be true, they are among the safest income stocks you can hold right now.
Image source: Getty Images.
1. Medical Properties Trust
Medical Properties is a real estate investment trust (REIT) that collects rent payments predominantly from various types of hospitals. General acute care hospitals make up the bulk of its portfolio at just under 72% of the 440 properties that Medical Properties has. REITs have to pay out at least 90% of their profits to investors, and that can offer some sense of security in knowing that a dividend is coming as long as the underlying business is profitable.
This year, the company raised its dividend payments by $0.01 to $0.29. The stock now yields 6.5% -- five percentage points higher than the S&P 500 average yield of 1.4%. Over a five-year stretch, the REIT has increased its quarterly payouts by 21%. And with a strong bottom line, there's ample room for that trend to continue.
Medical Properties released its latest quarterly numbers on April 28, showing that revenue for the first three months of 2022 rose 13% year over year to $409.8 million. The REIT noted that its hospitals were performing "exceptionally well" and that average cash rents (in the majority of its portfolio) were up 4%. Funds from operations, which is what REITs rely on in place of net income to evaluate their performance, came in at $0.47 per share. That would put its dividend payout ratio at just 62%, which suggests that the current yield is incredibly safe right now.
Shares of Medical Properties are down 26% year to date, more than the S&P 500's decline of 16%. And for investors who are willing to buy the dip, this could be an excellent opportunity to load up on a solid dividend stock.
2. Camping World Holdings
Camping World Holdings has an even higher dividend yield of 8.6%; its share price has also been tumbling, down 31% in 2022. The company retails recreational vehicles and provides consumers with the supplies they need for camping. It makes for a great recovery stock as the economy returns to normal and consumers look for cost-effective vacation options.
The company went public in 2016, but in its brief history has proven to be generous with dividend payments. In 2020, it issued a special dividend of $1 per share, and this year it raised the dividend by 25% to $0.625.
And its recent numbers suggest there could be room for even more hikes in the future. Camping World is coming off a record-setting period for the first three months of 2022 with sales of $1.7 billion in Q1, which was its best-ever first quarter in its history. Its diluted per-share profit was also $1.02 for the period, which is easily enough to cover the company's quarterly dividend. Camping World's payout ratio of less than 50% means investors don't have to worry about the safety of the dividend.
Camping World is a stock that likely gets skipped over because of its high yield and the risks that conservative investors might assume it possesses. But by doing so, investors could be leaving lots of cash on the table. For those who can look past the high yield and see that it is indeed safe, this can be a top dividend stock to buy and hold for years.
