With the market once again at record highs, it becomes more important than ever to shop around for bargains. In the world of high-dividend stocks, a small price difference can produce a big effect on long-term compounded returns.
With that in mind, here are three high-yield dividend stocks that our analysts like going into March, as well as the reasoning behind their recommendations.
All of the same reasons I originally bought Realty Income for still apply. The company maintains its outstanding track record of dividend increases, which now stands at 79 increases since 1994, including 69 consecutive quarterly increases. And, Realty Income has an enormous portfolio of commercial properties that it leases to high-quality tenants. And, it maintains a fantastic occupancy rate, which currently stands at 98.4% and has never fallen below 96.6% no matter how bad the economy has gotten.
This is thanks to a winning business model, which is a recipe for long-term success and stability. Commercial tenants are on long-term leases (15 years or more), and pay a property's expenses such as taxes, insurance, and maintenance. Combined with the high occupancy rate, this means that Realty Income has a steady, growing income stream that isn't at risk of rapid fluctuations in turbulent times. This can be seen by comparing Realty Income's performance during 2008 (down 8.2%) to that of the S&P 500 (down 37%).
And the proof is in the performance, with average annual total returns of more than 17% since going public 20 years ago.
The reason I'm recommending it in March is because shares have fallen by about 10% over the past month for reasons other than the company's business itself (mainly related to interest rates). As a result, its shares are at a more attractive valuation than they were earlier this year.
Selena Maranjian: If you're looking for a company that pays a substantial dividend yield and also has a business that's performing well and has a promising outlook, then give HCP, (NYSE:HCP) some serious consideration. Recently yielding 5.4%, it's a healthcare-focused REIT (real estate investment trust) -- which means it's required to pay out at least 90% of its taxable income in the form of dividends. Its dividend history is impressive, featuring 30 years of uninterrupted dividends and annual dividend increases.
HCP's properties feature medical offices, laboratories, senior living and nursing facilities, and hospitals, that it buys, develops, leases, manages, and sometimes sells. Its properties are geographically diversified, too, reducing the risk of a particular region going through tough times and hurting the company's performance. HCP has rewarded investors well over the years, averaging an annual gain of about 15% over the past 25 years.
It's easy to see that the company is well positioned to keep profiting thanks to demographics. As America's population keeps growing, aging, and needing more healthcare services, HCP will be there to provide -- and profit. HCP will face occasional challenges, though, such as interest rates that are likely to rise in coming years, putting pressure on its profit margins. The good news is that those margins are quite high, with gross margins recently above 80% and net margins topping 40%. That reflects a solid, high-performing outfit. In its last quarter, revenue grew by nearly 14% year over year, with occupancy rates for its medical office and life sciences properties topping 90%.
Dan Caplinger: Carl Icahn is well-known for his investing prowess, and his publicly traded investment vehicle, Icahn Enterprises (NASDAQ:IEP), is structured as a limited partnership and pays a dividend yield above 6%. Lately, Icahn has suffered some rare setbacks, and that briefly sent the price of Icahn Enterprise units down to their lowest levels since late 2013.
Most of Icahn's troubles came from big bets in the energy sector that went sour when the price of crude oil plunged late last year. In particular, Icahn Enterprises' holdings in Icahn's hedge fund have fallen in value, with Chesapeake Energy and Transocean having proven especially vulnerable to trends in the oil and gas business. Chesapeake is still struggling to find the best mix of oil and natural gas production given volatile price movements in both commodities, while Transocean deals with an expected drop in interest in expensive offshore drilling and an aging fleet of drillships.
Before you invest in Icahn Enterprises, though, it's important to understand that the units trade at a price that's well in excess of the value of the limited partnership's underlying assets. Such premiums are common with Icahn at the helm, as investors are willing to pay up for his management. Nevertheless, as energy prices show some signs of recovering, Icahn Enterprises could well earn the interest of traders once more, making now a reasonable entry point despite the current premium.
Dan Caplinger has no position in any stocks mentioned. Matthew Frankel owns shares of Realty Income. and Transocean. Selena Maranjian has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.