5 of the safest high yielding dividend stocks on the planet
All investors are unique. But a common theme of the most successful investment portfolios is their tendency to rely on dividend-paying stocks.
This should come as no surprise to anyone. Companies that pay a dividend are almost always profitable, have proven operating models and generally have excellent visibility into the future. It also doesn’t hurt that dividend-paying stocks have absolutely been circling around their peers that don’t pay dividends over the long term.
But income seekers face a dilemma. They want the highest possible return with the least amount of risk. Data shows that once a payment reaches high return status (4% or more), the returns achieved can become risky. In other words, high yield dividend stocks can sometimes be more of a problem than they are worth.
However, this is not the case with the following five high yield dividend payers. These are, in my opinion, five of the safest high yielding dividend stocks on the planet.
Verizon Communications: 4.4% return
With the exception of utility stocks, there’s probably no industry or niche that generates more consistent cash flow or pays consistently high dividends than telecommunications. Although AT&T enjoys the highest return, the most secure telecommunications payment of all goes to Verizon (NYSE: VZ) at 4.4%.
As noted, predictability plays a key role in Verizon’s success. It’s been a good decade since wireless download speeds improved in this country. Deploying 5G infrastructure gives consumers and businesses the motivation they need to upgrade their devices and download more data. As Verizon’s wireless segment enjoys high margin data consumption, the 5G revolution is a path to sustainable organic single-digit wireless growth.
Beyond its wireless operations, Verizon is spreading its wings in broadband services. The company spared no expense to purchase 5G mid-band spectrum. This is expected to help Verizon reach 30 million homes with its broadband services by the end of 2023.
With a payout ratio of around 50%, high yielding dividend stocks aren’t much safer than Verizon.
Enterprise Product Partners: 7.3% return
You probably wouldn’t think companies in the oil and gas industry are “safe,” especially given the hits crude oil took in the wake of the coronavirus pandemic last year. But the main limited partnership Enterprise Product Partners (NYSE: EPD) stands out as an exception to the rule.
Enterprise Products Partners is a mid-level energy company. Instead of drilling for petroleum and natural gas (upstream) or refining petroleum products (downstream), it mainly deals with the transportation and storage of petroleum, natural gas and natural gas liquids. It has more than 50,000 miles of pipelines and approximately 14 billion cubic feet of natural gas storage capacity, most of which is located in the midwestern and southern states of the United States.
Mid-level companies like Enterprise Products Partners generate highly predictable cash flow with long-term fee-based contracts. She regularly spends capital to invest in new pipeline and storage projects and isn’t afraid to make acquisitions to fit a landscape that will eventually lean towards cleaner energy solutions.
Most importantly, Enterprise Products Partners’ distribution coverage ratio – a measure of distributable cash flow divided by distributions payable – has never nearly fallen below 1 in 2020. In fact, it has always been. in the high 1s, which means a rock-solid and durable pay.
Philip Morris International: 5% return
The tobacco giant is another that seekers of exceptionally secure high yielding stock income can count on. Philip Morris International (NYSE: PM). The company is behind the famous premium tobacco brand Marlboro.
To state the obvious, the nicotine in tobacco is an addictive chemical. This means that cigarette smokers tend to remain consumers for long periods of time. Even with health regulators loudly worrying about the dangers of smoking, Philip Morris has been able to use his strong pricing power to offset volume declines in developed markets.
Philip Morris also benefits from its geographic diversity. It does not operate in the United States but is present in more than 180 other countries around the world. This means that it can offset the tightening of tobacco regulations in some developed markets with the growth of the burgeoning middle class in some emerging markets.
With Philip Morris paying 72% of Wall Street’s expected earnings per share in 2022, it’s clear that rewarding patient shareholders is a priority.
AGNC Investment Corp. : yield 7.7%
Few industries have been more universally hated by Wall Street over the past decade than mortgage real estate investment trusts (REITs). But despite Wall Street’s disgust, mortgage REIT AGNC Investment Corp. (NASDAQ: AGNC) has always provided high single-digit or low double-digit performance. This should be the expectation of income seekers in the future.
Mortgage REITs like AGNC seek to borrow money at low short-term borrowing rates to purchase assets, such as mortgage-backed securities, with higher long-term returns. The difference between this higher long-term yield and this lower short-term borrowing rate is known as the Net Interest Margin (NIM). It should be noted that the yield curve traditionally steepens during the early stages of an economic recovery. For mortgage REITs like AGNC, this means we’ve reached the sweet spot in their growth cycle where NIM is expanding.
The other factor to consider is that AGNC Investment has completely reorganized its asset portfolio to focus almost exclusively on agency securities. An agency warranty is protected by the federal government in the event of default. While agency returns on assets are lower than their non-agency counterparts, this added protection allows AGNC to use leverage to its advantage.
Finally, AGNC Investment analyzes its rock solid dividend on a monthly basis.
IBM: 4.4% return
Tech stocks are certainly not known for their high returns, but that’s exactly what you’ll get with a tech pillar. IBM (NYSE: IBM). Its 4.4% payout can easily exceed the going rate of inflation, and it’s easily one of the safest high-yielding dividend stocks in the world.
Even though IBM stocks have not been among the best performers over the past decade, the company continues to generate tons of profit and cash flow due to two factors. First, IBM relied on its hybrid cloud solutions and artificial intelligence. It paid the price for its late entry into cloud computing, but used innovation and acquisitions to find its way. In the first quarter of 2021, around 37% of its total revenue came from high-margin cloud services.
The other important factor here is the cost reduction measured by IBM for its legacy operations. Although its legacy software sales are generally flat or down slightly, factoring in expenses has kept its margins high. As a result, the cash flow IBM generates from these legacy operations helps reduce its debt and fund its hefty dividend.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.