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3 Stocks to Buy with Dividends Yielding More than 5%

By Matthew Frankel, CFP® – Mar 29, 2016 at 7:05PM

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Not all high-dividend stocks are smart investments, but here are three you can buy and hold for decades.

There are lots of stocks on the market that pay high dividends. For example, you can easily find mortgage REITs or business development companies with yields of 10% or more.

Just because a stock pays a high dividend doesn't necessarily make it a good long-term investment. Here are three stocks, however, that are great long-term investments with yields above 5%.

No other vendor
With today's low oil prices, oil companies' stock prices have fallen, which means that many dividend yields have grown. While it's not the highest-paying oil stock on the market, one that I feel confident in over the long term is National Oilwell Varco (NOV 1.51%), which yields 5.91% as of this writing.

Now, it's important to note that the reason National Oilwell Varco's dividend is so high is the stock price has plunged. National Oilwell Varco wasn't a "high dividend" stock before oil tumbled, as you can see in the chart below.

NOV Chart

When a sector is down in the dumps, however, that's one of the best times to load up on the strongest companies. National Oilwell Varco has a dominant market share, supplying about 80% of the offshore drilling market as well as a large portion of land-based rigs. National Oilwell Varco's standardized rig designs will also provide it with a steady stream of business for replacement parts as well. In fact, the company has such a dominant presence, its initials are often referred to as "No Other Vendor."

With National Oilwell Varco, you may not be thrilled with your investment in a month, a year, or even in a few years if low oil prices persist. However, the company has all of the makings of a long-term winner, and should come out of the tough times even stronger than before.

A smart play on healthcare trends
Myregular readers know that I love real estate as a long-term investment, particularly in the form of real estate investment trusts (REITs). One of my favorite REITs on the market is Welltower (WELL 3.24%), the leading REIT specializing in healthcare properties, which pays a 5.14% yield.

The reasons I like Welltower are pretty simple -- the company has a solid balance sheet, good management, and an excellent 45-year track record of market-beating performance. The company has averaged a total return of 15.6% per year since inception, its dividend has grown by an average of 5.7% per year, and debt makes up less than one-third of the company's capitalization.

And most of all, I love the demographic trends, which should keep demand for healthcare real estate growing for years to come. The elderly population is aging rapidly in all of Welltower's target markets (U.S., U.K., and Canada) -- in fact, the 85+ population in the U.S. is expected to triple by 2050, and in the U.K. and Canada the 75+ population is growing at five and seven times the rate of the overall population, respectively.

A different kind of REIT
Many people don't think of Iron Mountain (IRM 0.85%) as an REIT, but that's exactly what this 5.92%-yielding stock is. Iron Mountain specializes in facilities that store documents and other records for the company's more than 177,000 customers.

There are a few good reasons to like Iron Mountain. First, storage facilities are one of the safer types of real estate in the sense that they have low maintenance and turnover costs, high tenant retention, and they don't need to maintain high occupancy ratios to remain profitable.

In terms of performance, Iron Mountain delivers what investors look for in long-term dividend investments -- consistency. The company has produced 26 consecutive years of revenue growth, and anticipates growing by another 20% by 2020, mainly due to its plans to expand in emerging markets.

Finally, Iron Mountain already pays a generous dividend, but management has made it clear that it intends to keep growing the payout. In fact, the company anticipates paying a $2.18 annual dividend by 2018 -- a 14% increase over today's payout that would produce a 6.8% yield based on today's share price.

Sleep soundly while your money grows -- that's the goal
This isn't meant to be an exhaustive list of high-yielding stocks that make great long-term investments. However, these three possess a unique combination of safety, yield, and growth potential that I feel will produce market-beating returns while allowing you to sleep soundly at night.

Matthew Frankel owns shares of National Oilwell Varco and Welltower. The Motley Fool owns shares of and recommends National Oilwell Varco. The Motley Fool recommends Welltower. 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.

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Stocks Mentioned

NOV Stock Quote
NOV
NOV
$22.48 (1.51%) $0.34
Iron Mountain Stock Quote
Iron Mountain
IRM
$54.32 (0.85%) $0.46
Welltower Stock Quote
Welltower
WELL
$71.44 (3.24%) $2.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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