Ever wondered why some companies are more generous than others when it comes to dividend payment, and why some stocks offer higher yields? While the reasons are manifold, there are certain vital indicators worth checking out before investing. Income-oriented investors, whose number has increased over the years, are a league that is heavily reliant on dividends.
It takes just common sense to understand that cash-flow generating companies would return maximum capital to shareholders when they reach saturation, a stage where there is very little scope for investing in assets any more. A factor that often attracts investors is that companies offering high-growth dividend are usually found at the bottom of the risk spectrum.
A factor that often attracts investors is that companies offering high-growth dividend are usually found at the bottom of the risk spectrum.
The best example is the utility sector, where the generally ‘mature’ companies register comparatively lower growth rates. Here is one such entity that has raised its dividend consecutively for more than four decades – Consolidated Edison. It is a promising stock that has found a place in the list of high dividend securities. Southern Company, a favourite of income investors, is another utility firm that has cultivated the habit of hiking dividend regularly. Spark Energy, Inc. and PPL Corporation are the other worthwhile options for utility aficionados.
It is a little known fact that there are companies for whom returning cash to investors is a statutory requirement, which makes them the safest option for investors who live off dividends in retirement. Here, the reference is to Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs). The income tax exemption they enjoy allows MLPs to disburse the lion’s share of their cash flow among shareholders, in the form of dividend. The predictable nature of MLPs – a concept envisaged to help oil companies in dealing with their huge capital requirement – makes them one of the most sought after investment avenues.
Assuming that anything between 5% and 8% is a pretty decent return, pipeline behemoth Magellan Midstream Partners LP is one of the high-dividend stocks in this category. Magellan is credited for successfully absorbing the devastating impact of Hurricane Harvey on its operations. Another sure bet for income investors is Enterprise Products Partners LP, which operates as a logistics and storage services provider in the oil and gas industry. The company stands out for its strong capital base and surplus cash flow.
The scenario is quite similar in the case of REITs, where the business structure is such that the companies stay out of the income tax net by disbursing a high percentage of their taxable income as dividend.
Assuming that anything between 5% and 8% is a pretty decent return, pipeline behemoth Magellan Midstream Partners LP is one of the high-dividend stocks in this category.
In its most recent investor statement, REIT Simon Property Group, Inc. announced a 5% hike in quarterly dividend, which the company had raised in each of the preceding two quarters also. Investing in Realty Income Corp, another REIT with robust fundamentals, would be a wise option for those looking for returns in the form of dividend. From an investment perspective, the main attractions of Simon and Realty Income are their stable balance sheets and strong cash flow.
The historically low valuations at which many REITs are trading currently make them an ideal option for newbies entering the stock market. Now, those searching for a real estate stock backed by balanced financial data should make sure not to miss Sotherly Hotels, Inc.. The tax stipulation for Business Development Companies is more or less the same as REITs. So, fans of high-yield stocks should keep watching these medium-scale financing companies also.