As 2022 showed, investing on Wall Street isn't always sunshine and rainbows. Although the stock market tends to reward patient investors, getting from point A to point B isn't a straight line. Stock market corrections, crashes, and bear markets are normal parts of the investing cycle.

One of the smartest ways to hedge against these inevitable downturns and set yourself up for long-term wealth creation is to buy dividend stocks. Publicly traded companies paying a recurring dividend are typically profitable and time tested. Further, income stocks have a history of long-term outperformance when compared to companies that don't offer a dividend.

A stopwatch whose second hand has reached the words, Time to Buy.

Image source: Getty Images.

Among the 43 companies I hold shares in (excluding my options positions), 16 currently pay a dividend. A small number of these holdings offer a high-yield payout of 4% and above. With the U.S. possibly on the verge of a recession and corporate earnings forecasts disappointing, my plan is to eventually add to three high-yield dividend stocks I already own.

AT&T: 5.93% yield

The first high-octane income stock I'd like to increase my stake in is telecom stock AT&T (T 2.15%). While AT&T is no longer a high-growth story, it provides steady operating cash flow, has a couple of well-defined catalysts, and is working with a much-improved balance sheet.

The prevailing spark for telecom stocks for the next couple of years, if not the entirety of the decade, is the ongoing rollout of 5G wireless infrastructure. Following roughly a decade of 4G LTE download speeds, consumers and businesses are excited about the prospect of trading in their wireless devices to take advantage of 5G.

The real benefit to AT&T will be seen in the amount of data its customers are consuming. Since data is one of the highest-margin aspects of wireless services, increased consumption has the potential to sustainably lift wireless revenue growth from the low single digits to the mid-single digits.

Very quietly, AT&T's broadband operations have turned into a rock-solid growth driver, with the company adding 1.2 million net broadband customers in 2022. It marked the fifth straight year that at least 1 million new net customers were added. Thanks to aggressive investment in the mid-band 5G spectrum, AT&T is able to entice residential and corporate clients with its 5G broadband offering, which is clearly helping to boost sales and high-margin bundling opportunities.

AT&T's divestment of its content arm, WarnerMedia, has been a positive, too. Last April, the company spun out WarnerMedia, which then merged with Discovery to create Warner Bros. Discovery (WBD -2.37%).

While I remain excited about Warner Bros. Discovery's long-term prospects as a shareholder, what's important from the standpoint of being an AT&T shareholder is that this deal required Warner Bros. Discovery to assume certain portions of debt previously held by AT&T. Including additional cash payments, AT&T received $40.4 billion as a result of this spinoff and merger. With less debt on its balance sheet, AT&T's 5.9% yield is in no danger of being reduced.

And as I pointed out earlier this week, wireless access and smartphones might as well be considered basic necessities these days. People might be willing to give up eating out to save a buck, but they're not cancelling their internet service or going without their smartphones.

With shares trading at less than 8 times Wall Street's forward-year earnings, I'll be looking to either buy additional shares of AT&T stock or perhaps be a bit more aggressive and purchase June 2025 calls with a $17 strike.

Innovative Industrial Properties: 8.35% yield

The second high-yield dividend stock I own that I'm planning to add to is marijuana-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 0.92%). IIP, as the company is more commonly known, has increased its quarterly distribution by 1,100% in less than six years.

The operating premise with IIP is similar to that of most REITs: It wants to acquire facilities that it can lease for lengthy periods (often 10 to 20 years). The difference is that IIP specializes in medical marijuana cultivating and processing facilities. Though cannabis remains an illicit substance on Capitol Hill, around three-quarters of all states have legalized it in some capacity.

If there's a prevailing concern with Innovative Industrial Properties, it's the company's on-time rental collection over the past couple of months. In February, just 92% of rents were collected, as opposed to 100% in previous years. With the federal government failing to pass various cannabis reform measures and competition among cultivators and retailers picking up, there's clearly some concern about the health of IIP's rental income stream.

While I'm not oblivious to these concerns as a shareholder, I'm also not too worried. All REITs eventually face delinquencies. Based on IIP's fourth-quarter operating results and its year-to-date update, as of late February 2023, it's making progress in amending master lease agreements or potentially making plans to sell assets if the leases in question aren't transferred to another party or modified.

Another reason I'm not sweating is Innovative Industrial Properties' lease structure. The more than 100 properties it's leased are all triple net. A "triple-net lease" requires the tenant to cover all property expenses, including utilities, maintenance, insurance, and property taxes. Although triple-net leases reduce the rental income IIP receives, they also ensure that inflation and surprise expenses are removed from the equation. Translation: IIP's operating cash flow tends to be highly predictable over a long period.

The other factor worth considering is that marijuana products have been treated as nondiscretionary goods. This means consumers continue to buy them regardless of how well or poorly the U.S. economy performs. Since cannabis is projected to be one of the fastest-growing industries in the U.S. this decade, it bodes well for IIP's long-term leasing prospects.

A smiling pharmacist holding a prescription drug bottle while speaking with a customer.

Image source: Getty Images.

Walgreens Boots Alliance: 5.62% yield

The third high-yield dividend stock I own and have plans to add to is pharmacy chain Walgreens Boots Alliance (WBA 6.34%). Walgreens is approaching Dividend King territory and has raised its base annual payout for the past 47 years.

Walgreens has faced two headwinds for the past few years. First, the COVID-19 pandemic temporarily put a dent in its business. Most of Walgreens' revenue comes from its physical stores. When initial lockdowns occurred, foot traffic and front-end sales in Walgreens' stores fell substantially.

The other issue for Walgreens Boots Alliance had been its lack of innovation. It was growing horizontally but not vertically, which allowed rivals like CVS Health to outperform it. However, the worst of the pandemic looks to be in the rearview mirror, and Walgreens has definitely taken steps to innovate and grow its business.

Easily the most exciting initiative at Walgreens is its partnership with and majority investment in VillageMD. Through the end of November, this duo had opened 200 full-service health clinics co-located at Walgreens' stores. The differentiating factor here is that these clinics are full service and physician staffed. They're designed to draw repeat visitors and connect with customers at the grassroots level in major U.S. markets. By the end of 2027, Walgreens anticipates having 1,000 of these health clinics operating in over 30 U.S. markets.

In addition to boosting its operating margin by shifting some of its revenue mix to healthcare services, Walgreens' management team learned its lesson from the pandemic and is spending liberally on improving direct-to-consumer sales. Even if digital sales and online orders with drive-thru pickup remain a small percentage of total revenue, digital sales have the potential to deliver sustained double-digit organic growth.

I've also been a fan of Walgreens Boots Alliance's efforts to clean up its balance sheet. The company divested its drug wholesale operations in 2021 for $6.5 billion and used some of this capital to reduce its outstanding debt. Further, it's slashed its annual operating expenses by more than $2 billion.

With Walgreens Boots Alliance sporting a 5.6% dividend yield and a forward-year earnings multiple of just 7, I'm certainly enticed to add to my existing position.