It's still a difficult time for income investors. Interest rates are predicted to rise in 2017, and Treasury yields are creeping up. But a 10-year Treasury bond pays less than 2.6% interest annually; guaranteed investments such as CDs and checking accounts offer returns of barely 1% a year. In that environment, high-yield dividend stocks look attractive ... and that's where the danger sets in.
With broad market indices at all-time highs, worldwide growth still muted and domestic political unrest possible, income-focused investors rightly feel a bit squeezed at the moment. And that raises the risk of "chasing yield" -- taking on too much risk for near-term return.
Many high-yielding dividend stocks aren't even good plays. In many cases, a high yield means the dividend is unsustainable, or that investors see significant risk of losing capital at the same time.
There are reasonably safe places to find yield, however, even in this market. That doesn't mean they're perfectly safe -- there's no such thing as a free lunch -- but for investors looking to drive income with the modest addition of risk, we have a few candidate.
These high-yield dividend stocks all yield more than 5%. All of them are U.S.-based companies (if only to avoid the tax complications that can come from overseas dividends). And all are worth a long look for income investors hunting strong dividends without taking on a significant amount of risk.
Here's a look at these seven high-yield dividend stocks, starting with the smallest yielder.
Prices and data are from the original InvestorPlace story published on March 10, 2017. Click on ticker-symbol links in each slide for current prices and more.
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The ticker symbol for Cedar Fair, L.P. alone should make the stock a buy.
OK, no it shouldn't. But there are fundamental reasons for a long position as well -- even beyond an attractive 5% yield.
For one, Cedar Fair's operating results continue to be solid. After growing revenue and adjusted EBITDA 7% in 2015, Cedar Fair just announced another record-setting year. Revenue increased 4% in 2016, and adjusted EBITDA rose 5%. FUN now expects to reach its long-range target of $500 million in pre-tax profit by the end of this year -- a full year earlier than originally projected.
There are some concerns here.
The most obvious is that the amusement park business can be cyclical. An economic recession that crimps consumer spending can have a significant impact on Cedar Fair's attendance, revenue and profits. FUN has exhausted its tax assets, too, and will return to paying cash taxes this year. (Corporate tax reform could cushion that blow, however.) And the company's status as a limited partnership can add a touch of complexity to investor tax returns.
Still, at a 5% yield, with distributions growing steadily and recent projects boosting attendance, Cedar Fair looks worth the risk and the hassle. The stock is valued cheaper than rival Six Flags Entertainment Corp (SIX), and offers a better dividend yield to boot.
That makes FUN a worthwhile target for investors seeking high-yield dividend stocks.
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Recommending a newspaper publisher like A.H. Belo Corporation as a stable dividend investment sounds ludicrous on its face. There might be no business in America less stable than print advertising at the moment. (Though mall-based apparel retailing is gaining ground.)
But hear me out.
AHC isn't really a newspaper publisher. The company is down to just two papers: the Dallas Morning News and the Denton Record-Chronicle. Those aside, it has a growing digital advertising business, and a lot of real estate. That includes the legacy DMN headquarters in downtown Dallas.
Meanwhile, A.H. Belo has no debt and finished 2016 with $80 million in cash -- enough to pay the current dividend for over a decade. The business is family-controlled -- they will want their cash -- and a long-speculated acquisition target. For instance, the New York Post reported last year that Gannett Co Inc (GCI) was interested in a takeover.
There are risks -- most notably an underfunded pension and obviously the continued decline in newspaper revenue and profits. But AHC remains cash-rich, cash flow-positive and incentivized to maintain the dividend (which it has done for four years now).
AHC might not seem like a stable dividend payer, but it likely will be.
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There's one key risk facing Outfront Media Inc.. The company has a key contract with New York's Metropolitan Transit Authority to supply advertising in subways, trains and buses. That contract drove about 15% of 2016 sales -- and OUT is awaiting word as to whether it will be renewed.
Fears of a loss in New York have kept a lid on OUT stock since its 2014 spinoff from CBS Corporation (CBS). But the pessimism seems a little overdone at this point.
Outfront Media is coming off a year where adjusted funds from operations (AFFO, an important metric for real estate investment trusts) grew 9% year-over-year. A win with Boston's transit authority could offset some of the pressure from a loss in New York. And Outfront -- for now -- still has a decent chance of maintaining that concession.
Showing its confidence, Outfront Media raised its dividend coming out of Q4. An annualized payment of $1.44 supports a 5.4% yield at current prices.
OUT certainly is no growth stock -- but it should be stable, and its REIT structure limits corporate income tax payments. There's enough here to project a steady, safe stream of dividends for some time.
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National Health Investors
National Health Investors Inc. stock has pulled back over the past few sessions -- possibly due to concern about a potential GOP overhaul of the Affordable Care Act.
But that selloff -- which has pushed NHI's dividend yield to nearly 5.5% -- looks overdone.
It's perhaps too simple to argue that a business based on financing senior living and medical facilities has a significant degree of safety. But there's truth to that argument. With the baby boomer generation retiring, demand for those facilities seems likely to only rise.
How exactly the government will pay for those facilities might be a matter of debate -- and have an impact on NHI stock. But at the same time, this isn't just another one of those high-risk, high-yield dividend stocks. National Health Investors has been around for a quarter of a century at this point. The company did cut its dividend back in 2000, but it has risen steadily since amid a number of questions about U.S. healthcare costs.
Indeed, NHI raised its dividend more than 5% ahead of a fourth-quarter report last month that the market rather liked. And yet the recent selloff has knocked shares down almost 10%.
It seems like a case of investors "selling first and asking questions later." And it seems like a buying opportunity.
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Collectors Universe, Inc. might seem the oddest choice on this list -- and that's probably the case. The company is an authenticator of coins and sports cards, and for years now, Wall Street has questioned whether the dividend is sustainable.
Well, the dividend is still there, and after dipping in early 2016, CLCT is back near a 15-year high around $24. Even with those gains, Collectors Universe remains a high-yield dividend stock, with a $1.40 dividend offering a 5.9% yield.
There are risks here, to be sure. Collectors Universe's PSA business has dominant market share, which also limits growth. Cards and coins generally can't be graded twice, and in sports cards particularly, most of the high-value cards have been graded. The dividend does outpace earnings at the moment, and hasn't been increased since 2014.
That said, the balance sheet remains strong, with more than $1 per share in cash and no debt. The company also has entered the Chinese market, to some success.
CLCT is probably the riskiest of the dividend stocks on this list from an income standpoint -- but there's still reason for optimism, and to expect more dividends to come.
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Shares of Mattel, Inc. are at a 52-week low, so investors may want to be careful in timing an entry point. Catching a "falling knife" is admittedly not safe.
However, concerns about a potential dividend cut are a bit too much. While fourth-quarter earnings disappointed investors and sent shares down 18%, the balance sheet is reasonably strong.
And beneath all that bad news is an attractive opportunity.
MAT stock trades at a notable discount to rival Hasbro, Inc. (HAS). Meanwhile, a long-building turnaround may have hit a speed bump in Q4, but there's still reason for optimism looking forward. A series of product launches related to 2017 movies should help this year's sales. A partnership with Alibaba Group Holding Ltd (BABA) will put Mattel merchandise on Alibaba's Tmall in China. And cost-cutting should help margins going forward.
Indeed, there's reason to be interested in Mattel as more than just a high-yield dividend stock. There's a real opportunity for share appreciation -- if the company can execute.
Should Mattel do so, shareholder returns will be much more than the 6% in cash that MAT throws off annually.
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Macquarie Infrastructure Corp. owns a number of businesses focusing on U.S. infrastructure (hence the name). Atlantic Aviation provides fuel and hangaring services at 69 airports. There's a liquid storage and terminal business, an energy business in Hawaii, and ownership in solar and wind facilities.
In sum, the businesses are growing nicely. In January, the company reiterated guidance for free cash flow per share growth of 10%-15% in 2017 and 2018.
And yet ... investors sold the stock off.
There are some concerns relating to the company's exposure to energy, but those fears seem overblown. The liquid terminals business operates mostly on "take or pay" contracts, limiting exposure to commodity swings. Meanwhile, MIC has raised its dividend every quarter since late 2013.
Few high-yield dividend stocks offer the type of growth seen at Macquarie Infrastructure. With the dividend already sitting near 7%, MIC seems like a strong choice.
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