The threat of rising interest rates has taken its toll on many dividend paying stocks recently, which can create a nice buying opportunity for long-term investors who want to add a little income to their portfolio. Given the recent volatility in these stocks, we recently asked three of our Motley Fool contributors to share a stock idea that doesn't require constant attention. Find out below why our contributors think that AT&T (T 1.88%), Kinder Morgan (KMI 0.27%), and StoneMor Partners (STON), fit that description to a T.
Dan Caplinger: Telecom stocks have historically been a reliable place for investors to turn for income, and even though AT&T (T 1.88%) is no longer a member of the Dow Jones Industrials, it nevertheless still has a dividend yield that is higher than anything the 30 Dow components have to offer. Yielding 5.5% currently, AT&T is a member of the elite Dividend Aristocrats club, with 31 consecutive years of annual dividend increases under its belt.
Some investors have grown nervous about AT&T's prospects, citing the fact that its recent dividend increases have been just a single penny per share. Increasing price competition among wireless networks have led some to conclude that there's danger that AT&T is in a declining business, with its long-run fate similar to what happened to the long-distance telephone market in the 1990s and 2000s.
Yet AT&T has overcome competition in the past, and it has done a good job of increasing its subscriber counts through innovative methods like connecting automobiles to the network. Moreover, although the company can expect continued declines in landline business, AT&T is positioning itself to take maximum advantage of the rise of the Internet of Things, which will produce much larger and longer-lasting profits in the long run.
Brian Feroldi: You may think it's odd for me to recommend an energy company as an income stock that doesn't require babysitting considering how crazy energy prices have been recently, but Kinder Morgan (KMI 0.27%) isn't just any ordinary energy producer. As one of the largest energy infrastructure companies in the world it derives 85% of its cash flow from fee-based activities that operate under long-term contracts, which insulates the company from drastic changes in commodity prices. This helps to keep its income stable, even when energy prices fall through the floor. After all, would the company have recently raised their dividend if lower commodity prices were hurting its growth prospects?
Kinder Morgan's executive chairman and largest shareholder Rich Kinder has successfully navigated the company through extreme energy swings in the past, and recently announced a roadmap for the company to raise its dividend 10% annually between now and 2020. With a current backlog of projects now worth $22 billion and growing, the company is in a great position to achieve those projections, regardless of commodity prices. With a current yield of 5.6% and a clear path for growth, I think Kinder Morgan is a great stock to buy and hold for the long term.
All joking aside, as one of the largest companies in the deathcare industry, StoneMor is a steady, all-weather business. StoneMor owns and manages a network of more than 400 cemeteries and funeral homes spread across 28 states and Puerto Rico. The master limited partnership offers a range of products and services, from burial lots and vaults to caskets and cremation services.
StoneMor employs a growth-through-acquisition strategy; it purchases cemeteries and funeral homes at prices it believes to be favorable and then works to improve their operations over time. This type of expansion strategy tends to work best in a highly fragmented industry, and the cemetery and funeral home industry is just that, with most of the roughly 20,000 funeral homes in the U.S. run as small, family operations and many of the more than 100,000 cemeteries belonging to nonprofits and religious institutions. As such, deathcare is an industry where the big often get bigger, and I expect that to be the case for StoneMor in the years ahead.
