When reinvested, dividends can quickly accelerate your gains.
What are the best high-dividend stocks to buy right now? We asked three of our analysts for their February picks, and here's what they had to say.
Matt Frankel
One high-paying stock I would suggest is National Retail Properties (NNN 0.86%), which is a real estate investment trust, or REIT, focused on commercial retail properties. National Retail Properties pays a 3.8% dividend yield, which is pretty solid for immediate income. More importantly, it is among the few publicly traded companies that have increased their dividend for at least 25 consecutive years.
The main reason I recommend National Retail is that its business model produces consistent market-beating returns without taking on a high level of risk.
The company owns over 2,000 properties and has an incredible 98.8% occupancy rate. Further, its tenants sign extended "net" leases: Not only do its tenants stay put for 15 years or more, ensuring low turnover, but regular rent increases are built into the lease agreements. Tenants also pay for more uncertain expenses, including taxes, insurance, and maintenance. All National Retail Properties has to do is sit back and collect checks.
The company's performance speaks for itself. Over the past 20 years, it has produced an average annual total return of 14.1%, handily beating the S&P 500's 9.8% and even the sector average of 11.5%. In fact, National Retail has beaten both of those benchmarks over the past one, five, 10, 15, 20, and 25-year periods.
Many experts say REITs like this one are valued too highly right now, but I disagree. National Retail's track record, high occupancy rate, and predictable income stream leave no reason to believe it won't keep up its fantastic performance in the years to come.
Dan Caplinger
Like Matt's, my pick for February is a real estate investment trust. But far from being the classic commercial real estate play, HCP (DOC 1.21%), which was once known as Health Care Property Investors, invests solely in real estate tied to the healthcare field. You'll find hospitals, medical office buildings, and skilled nursing facilities among its properties, as well as senior housing developments and life-science laboratories. HCP works with some of the nation's leading healthcare providers. By using a wide range of different investment methods, including direct ownership, debt financing, and joint-venture development deals, HCP manages its risk and looks for the best way to reap financial rewards from its assets.
HCP currently yields 4.6%, making it attractive to dividend investors. And as demographics favor greater demand for healthcare real estate, especially in the senior housing field, HCP should have added opportunities to invest in money-making projects well into the future. While rising interest rates could cause investors to lower their expectations for HCP's future income streams, the REIT's growth potential will likely act as a brake on any rate-induced decline, leaving further dividend increases a possibility and thereby making HCP shares look even more attractive throughout 2015 and beyond.
Dan Dzombak
Another high-yield dividend stock to consider in February is Philip Morris (PM 3.83%). Philip Morris is the dominant international tobacco company, with two of the top three global cigarette brands, the No. 1 brand in 59 countries, and more than 40% market share in 45 countries. These brands give Philip Morris a competitive moat that no company is likely to ever overcome.
That global presence is key. While cigarette consumption is declining in the U.S. and other developed markets, tobacco use worldwide continues to grow, particularly in developing countries. With its dominant brands around the world, Philip Morris stands to benefit the most from this growth.
This standing means Philip Morris can pay out roughly out 80% of its cash flow in dividends instead of reinvesting that cash in the business. The company's dividend payments have grown alongside the business, rising at an annual rate of 12.4% over the past three years. The company's current dividend yield of 5% is far ahead of the broader market's 1.9%.
Further, the business trades at a lower price than the market. With a current stock price near $83, Philip Morris trades at a P/E ratio of 17, while the market average is around 19.
