With 10-year treasuries continuing to yield nearly 5% income investors have a lot of choices. Strong yields are currently available in the bond market and the equity market. I think that makes higher-yield dividend stocks particularly interesting at the moment. While investors can buy treasuries and other bonds and bank 5% returns with very little risk, there are downsides. Primarily, stocks have a much greater ability to appreciate in price.
I also believe dividend stocks yielding above 6% will see greater demand. Investors know 5% is available in the bond market. They will naturally look to the equities market for higher-yield options, i.e. dividend stocks with greater income potential than 5%. Let’s look at those options for investors who are seeking strong returns with minimum risk.
Dividend Stocks: Enterprise Products Partners (EPD)
Enterprise Products Partners (NYSE:EPD) began life as a wholesale marketer of natural gas liquids. Today, the company is a midstream oil firm that serves natural gas and oil producers throughout North America. The stock includes a dividend yielding 7.6% currently. Although that level of yield is generally considered risky EPD shares have a beta of 1.01.
That beta figure is highly suggestive of the idea that Enterprise Products Partners is more an income machine than a risk at all. There are several other reasons to believe that EPD shares won’t let you down as an investor. For one, the company last reduced its dividend in 1998. The entire purpose of its shares is centered on steadily returning income to investors.
The company also does what, in my opinion, defines a strong company: It produces greater returns from the capital that it borrows than the cost of interest on that borrowed capital.
Leggett & Platt (LEG)
Leggett & Platt (NYSE:LEG) is an old firm that primarily supplies bedding components to manufacturers in the furniture industry. It also supplies specialty flooring and specific components in the aerospace industry.
Although Leggett & Platt may seem like a stable company operating in a predictable sector it is risky. The latest figures out of its investor relations team show that the company is facing difficulties. Third quarter sales declined by 9%, earnings per share fell $0.13 to $0.39, and the company lowered 2023 guidance.
The risk is obvious. That said, the company last reduced its dividend in 1972. Based on the latest market reaction to Fed rate decisions, most investors believe that rates aren’t headed any higher. That means the markets will improve and that should increase Leggett & Platt’s prospects perhaps in early 2024. So, investors can buy LEG shares now while they’re inexpensive and assume that the company will improve given that it has been operating for more than 140 years.
Beyond that, the company also operates in the bedding industry and sleep quality is a big issue these days. It certainly has a big opportunity to seize.
Dividend Stocks: Crown Castle (CCI)
Crown Castle (NYSE:CCI) is a cell tower REIT for investors with a long-term perspective. The company is going through a period of reorganization and investors who put their money behind it should do well with a few years in the market. The 5G opportunity will continue to favor CCI shares overall.
Crown Castle reduced its workforce and T-Mobile canceled redundant tower use that was a holdover from a Sprint deal. Further, Crown Castle killed its tower installation business and pushed it onto third parties rather than doing it for its clients.
The company’s fundamentals are essentially flat at the moment but CCI remains safe overall. Its dividend and available funds for owners remain healthy and high dividend growth above 6% is expected to resume in a few years. Thus, a medium term perspective is probably needed to capitalize most in this case. That said, CCI shares yield 6.6% today so it also makes sense for shorter-term perspective investors.
Kinder Morgan (KMI)
Kinder Morgan (NYSE:KMI) is a good alternative to utilities stocks that have been hard hit by rising bond yields. It’s safe like a utilities firm but offers a dividend yield of 6.8% which is higher than bonds or utilities stocks.
I think investors should view an investment in KMI shares with a dividend income perspective in mind primarily. The company provides pipeline transportation primarily for natural gas but also for crude oil. It is facing specific headwinds that prevent it from seeking growth currently. Rates remain elevated so it can’t go out and lay pipe cheaply. There’s also more pushback to adding pipelines due to environmental concerns. That said, Kinder Morgan isn’t in trouble and its business is doing fine. Current expectations are that Kinder Morgan will continue to grow in 2024. It’ll continue to pay a dividend.
Kinder Morgan tends to maintain stronger than average margins and is consistently profitable. Those factors favor it as an investment overall.
Physicians Realty Trust (DOC)
With a dividend yielding more than 8.1%, Physicians Realty Trust (NYSE:DOC) would appear to be a risky stock to many investors. In general, real estate is under pressure given how high rates are at the moment. Commercial REITs are especially at risk as many associate them with retail and other flagging sectors.
However, Physicians Realty Trust operates real estate in the healthcare space which is one of the most stable sectors. Highly inelastic demand for healthcare services means that DOC shares are relatively protected no matter the prevailing macroenvironment.
There’s other positive news for the firm as well. Physicians Realty Trust just agreed to a merger with Heathpeak Properties. Their combined footprint will spread over 52 million square feet of which 40 million square feet is outpatient properties in high growth geographies. The markets have reacted positively to the news in the days following its announcement. The consolidation should lead to a stronger business overall and higher share prices as a consequence.
Altria (MO)
Altria (NYSE:MO) continues to pay investors nearly 10% to park their capital in it as it pivots toward smokeless nicotine products. It is also still a strong investment even after Q3 results disappointed.
Altria’s revenues are driven by cigarette sales today. So, when volumes fell by a greater than expected 11.6% in the third quarter a selloff ensued. Price increases weren’t able to make up the difference. Share prices fell and that increased dividend yields above 9.5%.
As a result, there’s a reasonable argument that now is a good time to pick up MO shares. Analysts continue to rate Altria a buy with many suggesting that the reaction to the Q3 sales dropoff was overblown.
I’ve been advocating for Altria all throughout 2023 because of its strong, dependable dividend. I continue to feel the same way. Altria will find ways to deliver nicotine to consumers. It’s a very profitable business. CIgarettes are the primary nicotine delivery product today so when they decline in sales it’s a reason for concern. They won’t be forever but stick with Altria because if it figures out how to productize nicotine profitably again it will grow again by leaps and bounds. If it doesn’t, you’ll get a huge dividend in the meantime.
AT&T (T)
AT&T (NYSE:T) has momentum on its side currently. The company did better than expected in the third quarter based on earnings. In turn, that strong performance allowed the company to lift its free cash flow guidance.
Presently, AT&T expects free cash flow to reach $16.5 billion in 2023. That’s one of the reasons it can pay a dividend above 7%. AT&T continues to invest in 5G and fiber connectivity and that has resulted in profitable customer growth and a business with momentum on its side.
There are now 8 million AT&T Fiber subscribers. 4 years ago there were only 4 million. AT&T has added more than 200,000 Fiber customers for 15 straight quarters. Wireless services continue to account for more than half of its $30.4 billion in quarterly revenues. Earlier in the year AT&T undertook drastic cost cutting efforts and it appears to be better of now. Massive cash flows provide AT&T a lot of latitude and leverage.
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.
