My good friend and fellow Fool Jesse Keyser and I share an obsession.  

Our passion is for classic so-bad-they're-fantastic movies. One instance of this is the 1988 action hit Die Hard. In this flick, terrorist Hans Gruber takes over Nakatomi Plaza in order to steal $640 million of bearer bonds. Hans (played by Alan Rickman) has several great quotes, but one stands out for us:

When they touch down, we'll blow the roof, they'll spend a month sifting through rubble, and by the time they figure out what went wrong, we'll be sitting on a beach, earning 20 percent.

Other than the whole rubble and blowing the roof part, Hans and I share a common goal: earning consistent income in a life of luxury.

But is this possible for individuals, short of a life of crime? Let's find out!

There are dozens of publicly traded stocks with dividend yields greater than 10%, but you shouldn't rush out and buy them just because you want to be like Hans. You may earn a sky-high yield for a quarter or even a couple of years, but it's really for naught if your principle declines over time or if the dividend is cut. This could be because of shakiness in the underlying business or an unsustainable dividend yield.

Some of the highest yielders in the market right now are mortgage REITs. They earn their money on the spread between low-interest short-term borrowing and purchasing high-interest long-term securities. Since borrowing is essentially costless in this environment, that makes this spread massive.

This combined with the fact that REITs are required to pay out at least 90% of their taxable income gives them some of the largest dividends the market.  

Here are some of the more popular, highest-yielding mortgage REITs on Fool.com:

Company

Recent Yield

Founding Date

Chimera Investment (NYSE: CIM)

17.7%

2007

American Capital Agency (Nasdaq: AGNC)

20.4%

2008

Cypress Sharpridge Investments (NYSE: CYS)

17.9%

2006

Hatteras Financial (NYSE: HTS)

15.2%

2007

These yields are unbelievably sexy when you compare them to the S&P 500 average yield of 1.91%.

But there are two things you should know before investing in them:

  1. Their yield comes with a large amount of risk. The first sign of meaningful inflation will likely cause the Fed to raise rates, if not sooner. This tightening will lessen the spread and ultimately damage the payout.
  2. They have all been in existence for less than five years.  Some, like Chimera, are spin-offs, but have still yet to establish any meaningful track-record. If you are going to pick one of the high-flying REITs, consider buying Annaly Capital Management (NYSE: NLY) as Fool analyst Ilan Moscovitz did in our 11 O'Clock Stock series.  It has been paying out dividends since 1997, which at least gives you some history to research. But it still suffers from risk No. 1, which makes it a non-investment for my money.

A better way
It's not that these stocks are necessarily bad investments, but their futures are a bit more uncertain due to interest rate exposure and federal legislations. However, if you share Hans' and my dream, you need to find great stocks that can outperform the market in addition to having great yields, and those that have the track-record to establish their longer-term viability. It's equally critical that you focus on the sustainability of their dividends.

To that end, The Motley Fool has created a new, free report titled 13 High-Yielding Stocks to Buy Today. I've selected two stocks from that report to discuss today, both of which have long histories of safe dividends.

First up, McDonald's (NYSE: MCD).  While its current yield of 3.2% might seem paltry compared to the REITs above, investors should keep in mind that over the past 10 years, its dividend has increased by a compounded 46.1% per year.  Here is its 10-year chart, with the share price adjusted for dividends.


Total returns of 226% in 10 years? In network TV-style audio editing, Hans would be shouting "Yippie-kay-yay Motley Fool" at returns like that. With their payout ratio of at a healthy 48%, I feel great about their dividends lasting for the foreseeable future, regardless of a change in interest rates.

Next up, let's take a look at industrial equipment provider Emerson Electric (NYSE: EMR), which pays a 2.5% dividend. Check out its 10-year dividend-adjusted returns.


Again, with a payout ratio of 52% and a 10-year compounded dividend growth rate of 6.7%, Emerson should deliver great returns at the right amount of predictability and risk.

Remember, these are just two of the 13 High-Yielding Stocks to Buy Today. If you'd like free access to the remaining 11, simply click here now.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Jeremy Phillips owns no shares of the companies mentioned in this article. Emerson Electric is a Motley Fool Income Investor choice. The Fool owns shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.