Many income-focused investors look at the S&P 500's dividend yield of only 2% and believe they can do better. After all, there are plenty of stocks on the market that offer up yields well above that of the index, so doesn't it make more sense to simply buy a basket of high-yielding stocks as a way to create more income? We Fools think so, but at the same time, we recognize that not every stock that has a high yield is worth owning.
In an effort to give our readers a jump start in their search for stocks that offer up big dividend payouts, we reached out to a team of Motley Fool contributors and asked them to share one of their favorite high-yielding stocks. Read below to see which stocks they picked to see if you could find a place for them in your portfolio.
Matt DiLallo: Medical Properties Trust (MPW -0.95%) pays a very healthy dividend, with the real estate investment trust (REIT) currently yielding 6.17%. It's a bit unique among its REIT brethren because its entire focus is on investing in hospitals and other healthcare facilities in the U.S. and in Europe. It has chosen to focus on hospitals because of hospitals are critically important to healthcare infrastructure. The importance of hospitals to healthcare means that they are likely to have a steady and reliable income for the hospital's operator, meaning it can easily meet its rent payments to Medical Properties Trust.
As of the end of the first quarter, the company had invested $5.7 billion in 204 properties across 29 states as well as in Germany, the U.K., Italy, and Spain. It's a portfolio the company has been steadily growing over the past decade, leading to solid dividend growth for investors. In fact, not only has the payout grown in size, up 10% since 2010, but it has grown safer, with the company significantly lowering its payout ratio, from 121% to 67%, and its leverage, which is now among the top third of all REITs.
That low payout rate and low leverage has positioned Medical Properties Trust to continue to grow its portfolio and dividend by a healthy rate going forward. As it stands right now, the company has over a billion dollars in liquidity at its disposal to buy or build new hospital facilities, with roughly $190 million already committed to new developments over the next year and a half.
Bottom line, Medical Properties Trust is one of the healthiest high-yield dividend stocks around, making it a great option to consider buying this month.
Stag Industrial doesn't fit the typical REIT mold. This company's niche is to focus on industrial properties that only house a single occupant. Properties that fit this description tend to be riskier than average since a building with only a single customer can go from being 100% occupied to 0% in a hurry. However, Stag cuts down on this risk substantially by owning hundreds of single-tenant properties, so investors don't have to panic if one of its buildings suddenly goes vacant.
One great advantage to investing this way is that the occupancy risk tends to keep other real estate investors from bidding on properties. That greatly reduces the competition Stag faces when it's looking to acquire a new building, which in turn drives down prices and allows the company to earn great returns on capital.
The company's business model may sound a bit unorthodox, but it works. In the most recent quarter, Stag's revenue jumped by 19%, and its core funds from operations -- which is a REIT proxy for earnings -- grew by 17%. Given that Stag believes nearly $1 trillion worth of properties could be acquisition candidates, I think the company stands a good chance at continuing to grow at double-digit rates for years to come.
Stag Industrials is a rare company that offers investors both a high-yield today and the potential for rapid growth over time. That's a hard combination to find in the markets, which is a big reason I count myself as a happy shareholder and have no plans to sell anytime soon.
Tim Green: The combination of a low valuation and a high dividend yield really can't be beat. Retailer Kohl's (KSS -2.28%) offers both. Like many retailers, Kohl's is having its fair share of issues. The company managed to grow comparable-store sales by just 0.7% last year, and adjusted earnings per share dropped 5% because of higher costs. Tepid consumer demand and rising competition from online retailers are headwinds, and Kohl's has reacted by closing a small number of underperforming stores.
Kohl's is in a better position than some of its department store peers. Macy's reported an 2.5% decline in comparable-store sales during 2015, for example, along with a steep drop in earnings. Kohl's profitability is below historical levels, with an operating margin of 8.1% in 2015 down from 11.5% in 2011. But the company still generated plenty of cash, with free cash flow of $784 million last year. This allows Kohl's to both buy back shares, which it does aggressively, and pay a hearty dividend.
Thanks to Kohl's slumping stock price, shares of the company now sport a dividend yield of about 4.7%. Based on the current share count, Kohl's will pay out a total of $378 million in dividend payments this year. The true value will be a bit less, though, since Kohl's plans to reduce its share count via buybacks throughout the year. The payout ratio based on free cash flow is 48%, which should be sustainable even if Kohl's earnings continue to be pressured.
Investing in any traditional retailer carries some risk, but with Kohl's trading for about 10.5 times earnings and offering a dividend yield nearing 5%, it seems like a risk worth taking to me.