Turnaround stocks can be risky, but they can also be rewarding, particularly if you can find companies that have solid and lofty dividends. Not all high-yield turnaround stocks are worth the risk, but EPR Properties (EPR 1.34%), W.P. Carey (WPC 1.08%), and Toronto-Dominion Bank (TD 0.01%) all appear to offer attractive risk/reward opportunities. With yields up to 6.9%, you'll want to get to know this trio of high-yield turnaround stocks right now.
1. Toronto-Dominion Bank tarnished its image
Toronto-Dominion Bank's stock price has been hovering around the $60 point, so even a $500 investment would easily get you in the door with this Canadian bank. Canada's banking system is highly regulated, providing the biggest banks entrenched industry positions. As one of the inveterate giants, TD Bank, as it is more commonly known, has a very solid business foundation. In fact, Canada remains a strong performer for TD Bank. The problems here stem from the company's growth efforts in the United States.
NYSE: TD
Key Data Points
TD Bank's U.S. business was used by employees to launder money. U.S. regulators found out, leading to a large fine, a revamp of the bank's internal controls, and an asset cap on the U.S. business. The first two are negatives, but not massive problems. The asset cap means TD Bank won't be able to grow its U.S. business as expected until it has regained the trust of U.S. regulators, which could take years. This has investors worried that TD Bank will be treading water for a while, which is likely true. However, the average bank yields around 2.2% today, while TD Bank has a dividend yield of 4.8%. Given that the risk of a dividend cut seems modest (the dividend was raised 3% after all of the bad news came out), turnaround investors are being paid very well to wait here.
2. W.P. Carey made the hard call and is better for it
Diversification is generally a positive when it comes to building a property portfolio, but sometimes entire sectors go into a deep funk. That's the big-picture story behind W.P. Carey's decision to exit the office sector, a move that led to a dividend reset in 2014. The thing is, the net lease real estate investment trust (REIT) owns a stronger portfolio now that it is focused on industrial, warehouse, and retail assets. It was a tough call to make, but it is one that long-term-focused dividend investors will benefit from, even if Wall Street is still downbeat on W.P. Carey's shares, pushing the yield up to 5.7% versus the average REIT's yield of 3.8%.
NYSE: WPC
Key Data Points
That said, W.P. Carey is already showing an important sign of strength: It has increased its dividend each quarter since the reset. That is the same increase cadence that existed before the reset and is clearly an attempt by the REIT to show it is operating from a position of strength. The cash it raised from the office exit and other asset sales has been going toward new investments, including the largest quarter of acquisitions in the company's history to close out 2024. There's more work to be done in 2025, but W.P. Carey looks like it is on the growth path again. Given the high yield, meanwhile, turnaround investors are being paid well to stick around.
Like TD Bank, W.P. Carey's stock price, at roughly $60, is easily accessible to investors.
3. EPR Properties has room to deal with the theatrics
REIT EPR Properties has the highest yield of this trio at nearly 7%. You could also easily argue that it is the riskiest investment. However, the company's adjusted funds from operations (FFO) payout ratio in the third quarter of 2024 was a reasonable 66%. That leaves ample room for adversity before a dividend cut would be in the cards...again. This REIT owns properties like movie theaters and amusement parks that bring people together in group settings. During the coronavirus pandemic, most of its tenants had to close their doors, leading the REIT to suspend its dividend to ensure it had the liquidity it needed to help its tenants survive the period.
NYSE: EPR
Key Data Points
When the dividend came back, it was at a lower level. However, EPR Properties has started to hike the dividend again, hinting the business is on the mend. The problem is that there's something of a dichotomy in the portfolio. Around a third of the business is tied to movie theaters, which are still struggling. The company is attempting to reduce this exposure, but it is a slow process given the size of the movie theater portfolio. That said, the rest of the business is in stronger shape today than it was prior to the pandemic, with rental coverage of 2.6x versus 2.0x in 2019.
This is probably the riskiest turnaround story here, so only more aggressive investors will likely be interested. But given the modest payout ratio, the strength in the non-movie theater property portfolio, and the ongoing effort to reduce movie theater exposure, patient turnaround investors will probably find EPR Properties and its lofty yield worth a deep dive. And EPR Properties stock price is below $50, so it is even more accessible than TD Bank and W.P. Carey for investors.
Balancing risk and reward with turnaround stocks
Not all turnarounds work out well, which is why the niche is most appropriate for more aggressive and active investors. That said, TD Bank and W.P. Carey appear to have fairly attractive risk/reward profiles when you take into account their above industry-average yields. Most active income investors will probably find them attractive. EPR Properties, with a much higher yield, will require more attention, given the portfolio concentration in movie theaters. However, investors are getting paid very well to keep tabs on the REIT's move away from that property niche.
