According to Bankrate.com, the rate on a one-year certificate of deposit (CD) is 4.2%. And on a five-year CD, the rate is 3.9%. Those are better yields than investors can get with most stocks, as the S&P 500 average is just 1.8%. But that doesn't mean you should put all your money in CDs or in a savings account with a bank, where promotional rates can come in above 4% as well.
There are higher-yielding dividend stocks that can potentially pay you higher rates for a longer time frame. Plus, you have the potential to benefit from an increase in their valuations as well. Three dividend stocks that pay more than your bank include Healthpeak Properties (DOC 1.06%), Seagate Technology (STX 0.37%), and Kinder Morgan (KMI 0.40%). Here's a closer look at these three businesses and whether they make good investments right now.
1. Healthpeak Properties
Healthpeak Properties is a real estate investment trust (REIT) that pays a dividend yield of 4.8% today. The company's portfolio and strategy revolve around healthcare, as its properties include life sciences campuses, medical offices, and retirement communities.
The company pays a quarterly dividend of $0.30, which looks to be safe right now. In the third quarter, Healthpeak's funds from operations per share totaled $0.42, giving the business a decent buffer over its current payout. And over the trailing 12 months, the REIT's free cash flow of $917.2 million has been 41% higher than the dividends it has paid out during that time.
While the stock underperformed the markets last year, falling 31% as the S&P dropped by just 19%, it has been rallying over the last few months after the release of its latest quarterly results. Although it hasn't always been a smooth ride for Healthpeak, and it did cut its dividend in 2021, the business looks to be in better shape right now. With healthcare also being more stable than it was during the peak of the pandemic, this could be an underrated income stock to buy today.
2. Seagate Technology
Computer hardware company Seagate Technology provides its investors with a dividend yield of 5%. The company's storage solutions, including portable drives, are essential in what's an increasingly more digitalized business world.
In the short term, businesses have been scaling back, however, and that is evident with Seagate's results as sales of $2 billion for fiscal 2023's first quarter (ended Sept. 30), were down 35% year over year. The company's CEO, Dave Mosley, stated that "global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter." And the company is projecting sales to decline further to $1.85 billion in the upcoming quarter. There are tough times ahead for Seagate, but the business is reducing headcount and making other cost-cutting measures that could achieve annualized cost savings of $110 million.
Seagate's payout ratio remains at 54%, and its free cash flow of $1 billion over the past four quarters is still far higher than the $604 million it paid in dividends. The company does have a buffer, but there's some risk here because if things don't improve soon, the payout could potentially be in jeopardy.
Near its 52-week low and down 53% last year, Seagate is the riskiest buy on this list. However, given the long-term potential it offers, and since it's trading at a discounted 10 times earnings, for investors willing to take on some risk, it may be an optimal time to go against the grain and invest in the business for the long haul.
3. Kinder Morgan
Oil and gas company Kinder Morgan is the highest-yielding stock on this list, paying investors 6.1% annually. It owns and holds interests in 83,000 miles worth of pipelines, making it a top energy infrastructure company to invest in. It estimates that its pipelines transport close to 40% of the natural gas that is produced in the country.
In the third quarter, sales of just under $5.2 billion were up 35% year over year. Earnings of $576 million were also 16% higher than the $495 million that the company reported a year earlier. A key metric that income investors will want to focus on is distributable cash flow (DCF), which is an adjusted income figure oil and gas companies use to base their payouts on. And during the period, Kinder Morgan generated $492 million more in DCF than what it declared in dividends. Per share DCF of $0.49 compares favorably to the $0.2775 in quarterly dividends the company is currently paying investors.
As a result, Kinder Morgan provides not only the highest yield on this list but arguably is the safest one to own right now, and it's an investment you can hold for years. Last year, the stock beat the markets with a return of 14%.
