A high dividend yield can boost the income you generate from your portfolio. But yield alone is not the best way to select a stock; you need to dig into the story and the stock a bit more than that. Here are three vastly different investing options with high yields that are likely to keep paying you handsomely for years to come.
1. Fee-based
Enterprise Products Partners (EPD +0.37%) is a master limited partnership (MLP). MLPs come with some extra tax issues, such as having to deal with a K-1 come tax time, but often have generous distributions. Enterprise's yield is a lofty 7.4%. The company operates in the midstream segment of the energy sector. Energy prices and stocks tend to be volatile, rising and falling in often dramatic fashion, but Enterprise is a bit different. It owns the infrastructure that helps to move energy, charging fees for the use of its assets. That generates reliable and fairly consistent cash flow.
NYSE: EPD
Key Data Points
The best example of this is the fact that Enterprise has increased its distribution every year for 24 consecutive years. But there are some other interesting facts to note. For example, the partnership's balance sheet is investment-grade-rated, meaning it has a strong financial foundation. And distributable cash flow covered the distribution by a huge 1.9 times over the past year, so there is a lot of room for adversity before a distribution cut would be in the cards. The distribution is likely to be the biggest part of total return here, but investors looking for a reliable income stream from a traditionally volatile sector like energy should like what they see.
2. Going further south
Bank of Nova Scotia (BNS 0.10%), more commonly known as Scotiabank, is one of the largest banks in Canada. It has a giant 6.2% dividend yield. The bank has paid a dividend every year since 1833. That's not only more than 100 years, but it is just a decade from reaching 200 years. This fact, while impressive, is not the most interesting thing about Scotiabank.
NYSE: BNS
Key Data Points
The Canadian banking system is highly regulated, leaving Scotiabank and a handful of other peers with entrenched positions. That's a strong foundation for growth in other geographic markets. Most of the bank's peers have chosen to expand in the United States, but Bank of Nova Scotia has gone further south to South America. It has notable industry positions in Mexico, Chile, Peru, and Brazil, as well as exposure to the Caribbean and Columbia. These are emerging markets that are expected to grow more quickly than developed countries. There is more risk involved, which is why the stock has a high yield, but if you are willing to own a bank with a unique business mix, Scotiabank and its fat dividend yield should be on your shortlist.
3. Relatively high
Food maker Hormel Foods (HRL +0.39%) will stand out here because its dividend yield isn't nearly as generous on an absolute basis, at roughly 2.7%. That yield, however, happens to be near the highest levels in the company's history, so it is high historically speaking. That suggests that Hormel is on the discount rack.
NYSE: HRL
Key Data Points
Hormel's products include icons like SPAM, Planters, and Skippy, all the way to newer brands like Wholly Guacamole. The yield is high today because the company is having trouble passing rising operating costs on to consumers, is dealing with the adverse impact of avian flu on its business, and is trying to revive Planters, a recent acquisition that was a bit neglected by its previous owner. The truth is, things are not going all that well today. But Hormel has increased its dividend annually for over 50 years, making it a Dividend King. It has successfully worked through difficult times before, and it's probably appropriate to give the company the benefit of the doubt this time around. Indeed, all of the above problems are solvable, given enough time.
And Hormel has another little feature that's worth noting -- a rapid dividend growth rate. Even in the face of adversity, the most recent dividend increase was a pleasing 6%. Over the past decade, that figure was 13%. What Hormel lacks in yield, it makes up for with dividend growth.
Plenty of options
Enterprise is a slow and steady high-yield energy stock. Bank of Nova Scotia is a high-yield bank with a differentiated business model. And Hormel is a bit of a turnaround play with a historically high yield and a robust dividend growth history. Take some time to get to know each of these stocks, and it is likely that at least one will find its way into your portfolio.
