With stock prices swooning this year, dividend yields are higher. Because of that, income investors have more options if they're seeking a bigger payout.
Three high-yielding dividend stocks some Fool.com contributors really like this month are Postal Realty (PSTL -0.29%), Medical Properties Trust (MPW -1.10%), and AGNC Investment (AGNC 0.97%). With payouts above 6%, they're several times above the 1.7% dividend yield of the S&P 500. Here's why these stocks are great options for yield-seeking investors to buy this December.
Postal Realty delivers a yield of 6% at its current price
Marc Rapport (Postal Realty): Postal Realty has been paying shareholders a dividend yield of 6% or a touch higher for a big chunk of this year and there's reason to believe that there's more to come. This unique real estate investment trust (REIT) has raised its dividend every quarter since it went public in 2019.
What makes it unique is its clientele. True to its name, Postal Realty owns and manages post offices and its tenant is the U.S. Postal Service. That's a portfolio of more than 1,600 facilities large and small that are fully occupied by one recession-resistant organization that, so far, has always delivered on its rent regardless of economic cycle.
Postal Realty is also growing, adding 66 properties in the third quarter alone. Its balance sheet appears sound enough to continue on that track, with 83% of its debt in fixed-rate obligations at an average rate of 3.63%, with "no notable debt maturities until 2026 and sufficient dry powder to navigate this environment," according to CEO Andrew Spodek in the third-quarter report.
One red flag for me with Postal Realty is its high payout ratio of about 118% based on current cash flow. REITs typically run higher in that metric than other equities but one this high does bear watching. Dividend cuts don't seem to be in the immediate offing, though.
That payout is supported by funds from operations (FFO), which for Postal Realty have more than doubled per share in the past three years to $1.06. And with a share price just north of $15 that gives this stock a price-to-FFO ratio of about 14.4, which makes shares look reasonably priced, too, for this reliable dividend machine.
I own shares of Postal Realty and would not hesitate to buy more as long as its revenue and portfolio keep growing and its financials remain correspondingly sound. A dividend cut might make me reconsider but right now, but after 13 straight quarterly increases, so far, so good.
A healthy checkup
Matt DiLallo (Medical Properties Trust): Shares of Medical Properties Trust have taken a beating this year. The healthcare REIT's stock price has lost more than 45% of its value. That sell-off has driven the hospital owner's dividend yield up to an eye-popping 9%.
Typically, a dividend yield approaching the double digits is a warning sign that the payout might not be healthy. However, that's not the case for Medical Properties Trust. Analysts expect the company to produce about $1.45 per share of adjusted funds from operations (FFO) next year. That's more than enough to cover the company's current dividend outlay of $0.29 per share each quarter ($1.16 per share annualized).
Meanwhile, Medical Properties Trust has a healthy balance sheet. It has primarily fixed-rate debt with limited near-term maturities and ended the third quarter with a 5.8 times leverage ratio, which is a healthy level for a REIT. The company has also enhanced its liquidity by selling several assets this year. It has deals lined up that should bring in $650 million of proceeds next year as they close. That's enough money, for example, to pay off its 2023 debt maturity of $446.8 million with room to spare.
Because of that, the REIT has the liquidity to continue acquiring hospital real estate as accretive opportunities arise. Those deals would help grow its adjusted FFO, which could allow Medical Properties Trust to continue increasing its dividend. The healthcare REIT has raised its dividend payment for eight straight years, growing by 12% since early 2020.
The market has been too pessimistic about Medical Properties Trust this year. Because of that, investors can scoop up shares of this high-quality REIT at a much lower price, locking in a big-time dividend yield this month.
The clouds are parting for the mortgage REITs
Brent Nyitray (AGNC Investment): The past year has been absolutely horrible for the mortgage space. After feasting on easy refinances during the COVID-19 pandemic, originators saw volumes evaporate as the Federal Reserve pushed up interest rates to tame inflation. Mortgage real estate investment trusts have struggled as well as mortgage-backed securities have underperformed Treasuries. AGNC Investment may be one of the first mortgage REITs to bounce back when the Fed signals that it is close to finishing its rate hikes.
AGNC Investment's portfolio is almost exclusively mortgage-backed securities, which are backed by the U.S. government. This means that if the economy does enter a recession and mortgage defaults rise, AGNC Investment will still get its scheduled principal and interest payments. Agency mortgage-backed securities are some of the most liquid bonds outside of Treasuries and the company speculated on its third-quarter earnings conference call that much of the underperformance over the past year has been due to bond fund managers reacting to redemptions by selling the most liquid products in the portfolio. This means agency mortgage-backed securities overshoot on the downside and often bounce back just as quickly.
The big event this month is the Fed meeting on Dec. 13 and 14. Investors will get a new round of economic projections and a new forecast for the federal funds rate going into next year. If the Fed signals it is close to finished with rate hikes, the mortgage REITs might become great candidates for a bounce back as investors reinvest in mortgage-backed securities, which are trading at the cheapest level relative to Treasuries since the 2008 financial crisis. At current levels, AGNC pays a monthly dividend of $0.12 per share, which gives the stock a dividend yield of 14.4%. The stock isn't for the faint of heart, but the yield might be too good to ignore.
