A combination of high yield and stable outlook should get anyone’s attention. The past year of a frothy bull market has pulled attention away from the slow-and-steady dividend payers, but retirees and income investors still need to find lower-risk stocks that will generate cash returns regardless of market performance.
There’s no one-size-fits-all dividend investing strategy. But these three dividend stocks that produce strong yields without taking on too much risk are worth considering for any income investor.
Stag Industrial (NYSE: STAG) is a real estate investment trust (REIT) with over 400 properties across numerous U.S. states. The company focuses on single-tenant industrial properties, most of which are warehouses and distribution centers. The global pandemic has created all sorts of problems for real estate, both in terms of immediate shocks and the emergence of long-term trends. The sharp decline in business activity has threatened REIT cash flows, with many of their tenants struggling to meet lease obligations. Long-term demand for brick-and-mortar retail, office space, and residential properties in some geographies is also uncertain.
Stag’s footprint of warehouses and distribution centers is dependent on industrial activity and e-commerce volume, both of which are performing well in the current economy. The REIT’s market price has been influenced by the same forces shaping the entire real estate sector, but the company is definitely in a more stable position than many of its peers. That’s created a compelling dividend play with the opportunity for appreciation if and when real estate stocks start attracting more capital.
Stag pays a monthly dividend, which many income investors love. Retirees who live off their dividend income are likely to enjoy those monthly distributions. Stag also pays a healthy 4.5% forward dividend yield, meaning it’s producing a lot of income per dollar invested. Importantly, the REIT’s distributions seem sustainable. The company produced $1.90 in funds from operations (FFO) during 2020, an increase of more than 3% over the prior year through the pandemic crisis. Stag’s cash available for distribution rose more than 20% during the year to $243 million. That is more than enough to support its current annualized distribution of $1.45 per share.
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Verizon Communications (NYSE: VZ) is a North American telecommunications behemoth, and it leads the U.S. market in mobile subscribers. The company reported slightly lower revenue and profits in 2020 compared to 2019, but it delivered strong free cash flows through a challenging economy. There is also some concern that it is losing ground to T-Mobile (NASDAQ: TMUS) in the 5G rollout because the challenger was quicker to market with next-generation service.
Still, Verizon is the mighty incumbent with a strong brand and it has positioned itself to maintain that leadership in 5G. The company’s heavy investment into network infrastructure has made it the fastest and most reliable 5G network provider. There’s no reason to expect rapid growth over the next five to 10 years, but it’s fair to expect continued stable financial performance and nice cash flows.
The growth-crazed market has let the more pedestrian stories like this one fall by the wayside, but a 4.5% dividend yield should entice income investors. The 57% payout ratio and a forward P/E ratio below 11 also offer some cushion against volatility risk.
Valley National Bancorp
Valley National Bancorp (NASDAQ: VLY) is a regional bank with more than $40 billion in assets. The bank offers products for businesses and consumers, including mortgages, automobile financing, HELOCs, commercial real estate, and construction loans. The financial sector has been challenged over the past year. High unemployment and struggling businesses are leading to higher delinquency rates across mortgages and commercial loans, but Valley National’s overall portfolio is still performing relatively well. While conditions at the end of 2020 were worse than in the year before, the value of delinquent loans was lower than during the March 2020 lockdown peak.
There’s some risk involved with investing in the financial sector right now, with uncertain economic conditions for the rest of 2021. However, Valley National is an interesting opportunity if you’re confident that a recovery is around the corner. The stock pays a 3.7% dividend yield with a conservative 47% payout ratio. The company navigated a very challenging 2020 and continued to deliver growth in both interest income and net profits. This is a relatively small bank without much analyst or media coverage, so it flies under the radar a bit. Fortunately for dividend investors, that creates an opportunity to pick up a great income stream from a company with solid fundamentals.
Ryan Downie has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stag Industrial. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.