7 Meme Stocks That Provide Meaningful Income
Meme stocks are a relatively new area of the investment landscape, emerging during the 2020 lockdowns. Covid changed society, technology, the workplace, and many other areas of life. It turns out, investing is no different.
Social media was among the most affected areas, with use rising dramatically as many of us were locked indoors. Investors congregated on Reddit, YouTube, TikTok, and other platforms to share stock market ideas and strategies. As a result, meme stocks were born.
Meme stocks have evolved since this pandemic-driven feeding frenzy. And although many of the most prominent meme stocks remain risk-forward investments, the risk profiles of many such companies have since calmed.
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The meme stocks discussed below certainly include a robust risk profile, but also provide dividend income that balances the risk, to a degree. Also included on this list are a few rock-solid firms that are-low risk but pay strong dividends, which is a nice balance for more conservative investors.
First Trust High Income Long/Short Fund (FSD)
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First Trust High Income Long/Short Fund (NYSE:FSD) is one of the highest yield stocks on this list, and among the most discussed companies on r/WallStreetBets. It is a closed-ended fixed-income mutual fund that invests globally.
Closed-ended funds are those that issue a specific number of shares at IPO, and then issue no further shares again. Fixed-income funds like First Trust High Income Long/Short Fund invest in debt securities like government bonds.
In this case, investors basically buy shares that cost about $11 and can expect a 10.5-cent monthly dividend in return. That equates to a yield above 11% on an annual basis. Dividend yields at that rate are attractive, because that is far above the average return most investments could be expected to produce. But at the same time, a yield that high is difficult to maintain, because it requires a lot of money.
FSD stock last had its dividend reduced in 2022, but it was only from 11 cents to 10.5 cents per share.
International Paper (IP)
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International Paper (NYSE:IP) is a paper and packaging company that is exactly the type of industrial firm investors might associate dividends with. In order to entice investment, slow-growing industrial firms often pay dividends. Usually, those dividends are low, falling into the 2-3% range.
However, International Paper offers a dividend yielding 5.9%. That’s a meaningful income source from stocks in any sector, and especially so within the industrial sector. The subsequent payout ratio associated with that dividend currently sits at 0.41. That’s well within the 0.55 upper limit widely considered to be healthy.
Further, the company’s management set a goal to keep its payout ratio between 40-50%, reducing its ratio after it sold its paper business. Given that the company’s current payout ratio is near the lower end of this band, it can be considered sustainable.
This also suggests that management currently has room to increase the dividend if it so chooses in the future. What’s more, IP stock is trading lower than it did prior to the pandemic, offering plenty of price appreciation potential overall.
UPS (UPS)
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UPS (NYSE:UPS) provides meaningful income for investors via a dividend yielding 3.6% at the time of writing. This distribution hasn’t been reduced since 1999, even before the dot-com bubble burst.
Shares are expected to rise over the coming year, and offer between 6% and 28% upside without the dividend factored in, according to Wall Street.
UPS is one of the largest logistics and supply chain firms in the world, and is a reasonable barometer for the economy overall. In times of contraction, logistics demand falls. This is true in the inverse, with demand for logistics services rising as the economy expands. Growth is expected to be weak this year, somewhere between 2% and 3% globally.
For UPS, this has translated to contracting top-line performance during the first quarter. The firm currently expects to record revenue of $97 billion during 2023. It reported $100.3 billion in revenue in 2022. Thus, the company’s share price is likely to remain muted. While that may discourage some investors, those who do invest get a decent income in a stock that is highly likely to rebound, given its position within the global supply chain and the reality of economic cycles.
DTE Energy (DTE)
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DTE Energy (NYSE:DTE) is a Michigan-based utility firm that provides electricity for 2.3 million people and natural gas to an additional 1.3 million customers.
Let me lay out the base case scenario based on Wall Street’s analysis of the company and then I’ll discuss its dividend and income. The average stock price target for the firm is $127.25. That implies 15% upside based on its current price of $111, at the time of writing. Add in the dividend which should amount to at least $3.82 over the next 12 months, and that return approaches 18%.
However, the company’s dividend was reduced in 2022. It paid a total of $3.88 in 2021, fell to $3.54 in 2022, and should provide $3.81 in income this year. Thus, this isn’t a perfect stock, but it’s also one that didn’t see the kind of decline many expected following tis recent dividend cut.
Additionally, relative to other utilities stocks, DTE Energy provides a high-yield dividend. This is among the safest utility stocks to buy, since its customer demand is relatively inelastic overall.
Nordic American Tankers (NAT)
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Nordic American Tankers (NYSE:NAT) is a shipping company that operates Suezmax tankers. Suezmax tankers are the largest ships that can transit the Suez Canal, with the capacity to carry more than 1 million barrels of oil.
The company appears to be doing well based on its most recent earnings report. Charter rates reached their second-highest average daily level in the firm’s 28-year history during the first quarter, at $51,902. Rates for the second quarter are expected to be high as well, at levels only achieved three times before.
The tanker shipping market has a unique industry and one that has paid massive dividends during the pandemic. Supply chain issues have caused unique demand conditions to emerge, and tanker firms have benefited. Nordic American Tankers is now offering a dividend with a forward rate of 16.5%. Recent insider buying suggests that prices can reasonably be expected to rise in the future.
Uniti Group (UNIT)
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Uniti Group (NASDAQ:UNIT) is probably the highest-risk stock listed in this article. It is a REIT that specializes in mission infrastructure. Its dividend yields 12.5%, which is extremely high. As a general rule of thumb, dividends above 6% are considered high-risk, because they’re most likely to be cut (the market may not believe they can be paid).
That said, Zacks is quite positive about the stock, recently upgrading it in its ranking metrics. The firm believes Uniti Group’s earnings outlook is improving, with experts expecting the company to earn $1.39 per share this year. That still equates to a decrease of 20.6% on a year-over-year basis.
Indeed, that’s why some investors will shy away from UNIT shares. During the first quarter, revenue increased modestly, but losses suddenly took off. Uniti Group lost more than $19 million after making more than $52 million a year earlier. That’s the kind of news that jeopardizes a firm’s ability to continue paying a high-yield dividend, so this is certainly among the higher-risk options on this list.
Douglas Emmett (DEI)
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Douglas Emmett (NYSE:DEI) is another commercial real estate investment stock. The company specializes in leasing a mix of multifamily units and office space. So, it’s easy to see why it is also quite risky, based on all the factors affecting those particular niches.
That said, its dividend yields a much lower 5.9%.
What’s important to know is that while Douglas Emmett does provide substantial income relative to other stocks in the market, the risk may not be worth it. Douglas Emmett’s revenues increased by 5.7% during the first quarter. Unfortunately, net income decreased by 28% during the same period.
The firm operates 18 million square feet of office space and 5,032 apartment units. There is inherent risk in these sectors, given how shaky the real estate market is overall. That said, the company was confident enough to add 617 additional apartment units during the first quarter. That at least suggests that management has reason to believe that it can escape the issues that many fear could occur.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
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