You don't have to be an income investor to love dividend-paying stocks. A robust and rising dividend also reflects a strong balance sheet and a company's ability to invest in future growth.
Increasing numbers of companies are taking note of dividends' importance to investors. Within the broad-based S&P 500 index, 423 of the stocks, or 85%, pay a dividend. All 30 components of the Dow Jones Industrial Average do.
So, we scanned the market and found the five best stocks with high dividend yields and very promising prospects. Here they are.
Let's start with a company that calls itself the "Monthly Dividend Company." Realty Income is an equity Real Estate Investment Trust that invests in retail properties and scores high on stability and regular dividend growth.
It boasts 234 commercial tenants, 79% of which are retailers, and some of its largest tenants as a percentage of revenue include Walgreens Boots Alliance, Fedex, and Dollar General. Moreover, because Realty Income is a triple-net REIT, the onus of taxes, insurance and maintenance lies with its tenants.
At a 4.6% yield and 72 consecutive quarterly dividend increases, Realty Income is a good fit in your portfolio if stability is what you seek. Don't peg it as a mere dividend-payer, however. In the last six months, Realty's stock price has jumped 7.3% while the S&P U.S. REIT Index climbed only 0.8%.
The future appears bright for this REIT, which invests in properties providing long-term care for seniors, and assisted/independent living. As baby boomers age (8,000 baby boomers are turning 65 with each passing day) and 10,000 retiring daily, there is plenty of growth potential for this company.
At roughly 5% yield, and with its monthly dividend recently increased to 18 cents monthly, this medical REIT offers more than a $2 dividend annually and is a solid option for a steady revenue stream.
For those who aren't entirely risk-averse, this REIT can add outsized growth potential to your portfolio.
Unlike the other equity REITs mentioned above, American Capital Agency is a mortgage REIT that invests in mortgages and mortgage-backed securities.
It borrows funds at lower short-term interest rates and invests in mortgages that pay higher rates, making a profit from the spread between the two interest rates.
Risk-averse investors may find this model volatile; these stocks are obviously very sensitive to interest rate movements, making the U.S. Federal Reserve's December decision even more crucial.
However, if volatility is something you can stomach, the 13.5% dividend yield is more than inviting.
Our list isn't limited to REITs. Here is a business development company that fits the bill; it helps small and mid-sized companies with equity and debt financing. Main Street Capital maintained a steadfast resilience amid the 2008 financial meltdown. Not only did it ensure consistent monthly dividends, the yield has witnessed a 50% rise, taking its yield to 7.1%.
As an added bounty, Main Street pays out a higher dividend that is contingent on its operating results. And it does this without touching its dividend base, which makes it even more attractive.
Another option for those with a fair appetite for risk is another BDC, Prospect Capital, a closed-end investment company offering both debt and equity.
With a dividend yield of more than 13.6%, the stock appears particularly enticing as a monthly income generator. Although investors were spooked by Standard & Poor's downgrade of Prospect to BBB and the proposed rate hike by the Federal Reserve cast another shadow over Prospect's future, the company's 30% discount to book value makes it an attractive option.
If you'd like to learn about another group of high-quality, high-yield income opportunities that are far too ignored by most investors, I urge you to check out this free presentation: 11% Yields and No Taxes.