Since the end of the Great Recession 12 years ago, growth stocks have proved unstoppable. That’s because an accommodating central bank and historically low lending rates gave fast-paced companies access to plentiful cheap capital that they used to hire, grow, and innovate.
But when viewed over the very long term, dividend-paying stocks outperform significantly. According to a report by JP Morgan Asset Management In 2013, companies that initiated and increased their payments over a 40-year period (1972-2012) generated a total annualized return, including dividends, of 9.5%. In comparison, stocks that didn’t pay dividends offered an annualized total return of just 1.6% over the same period.
More often than not, dividend-paying stocks are the secret sauce to a successful investment portfolio. As we move forward in September, the following three dividend-paying stocks are standing out in all good manners and begging to be bought.
AT&T: 7.6% yield
First, a company that most investors are probably familiar with, the telecommunications giant AT&T (NYSE: T).
AT&T hasn’t been a Wall Street favorite for the past four months, and has pretty much worked for the past decade – if we look strictly at its stock price performance. The company’s growing debt levels raised concerns and investors were not excited about its plans to split WarnerMedia and combine it with Discovery (NASDAQ: DISCA)(NASDAQ: DISC) to create a new media entity (WarnerMedia-Discovery). When this combination is complete, we’ll see AT&T’s 7.6% return drop to around 4.5%.
While income seekers are unlikely to be happy with this upcoming drop in yield, there are a number of reasons to be excited about AT & T’s future now that it has set the wheels in motion on its spinoff. media.
To begin with, existing shareholders will take a stake in a media entity that will focus on streaming content. This should help AT&T differentiate itself from other streaming giants, such as Netflix and Walt disney, thanks to its sports exhibition and original content. In other words, investors will benefit from increased transparency of AT & T’s fastest growing segment.
Discovery President David Zaslav, who will lead WarnerMedia-Discovery, is targeting 400 million subscribers worldwide, which would almost quintuple the 85.5 million combined subscribers today for HBO and HBO Max (67.5 million ) and Discovery (18 million). At the same time, the WarnerMedia split will allow AT&T to focus on its wireless segment and pay off some of its heavy debt.
It’s an exciting time for wireless businesses as this is the first time in a decade that wireless download speeds have improved dramatically. The deployment of 5G networks is expected to create a sustainable multi-year technology upgrade cycle that will result in increased data consumption. And data is what determines AT & T’s wireless margins.
The bottom line is that this 7.6% return is here to stay until the spin-off occurs in mid-2022. After that, investors will still have an above-market return in AT&T, as well as access to faster-growing media assets through the WarnerMedia-Discovery deal.
Innovative Industrial Properties: 2.2% yield
Dividend-paying stocks don’t need outsized returns to be productive for investors. Despite its rather weak return of 2.2%, the cannabis-focused real estate investment trust (REIT) Innovative industrial properties (NYSE: IIPR) is still an exciting investment.
Innovative Industrial Properties, or IIP for short, have a fairly simple operating model. It aims to acquire medical marijuana cultivation and processing facilities which it then rents for long periods. While the bulk of the business’s growth comes from acquisitions, it passes inflationary rent increases each year and collects property management fees based on the annual rental rate. Long story short, there is a modest component of organic growth that can give that little extra boost.
As of mid-August, IIP had 74 properties in its portfolio spanning 18 states and covering 6.9 million square feet of rental space. The bottom line is that 100% of this rental space has been fully let, with a weighted average lease term of 16.6 years. The implication is that the IIP is expected to enjoy highly predictable cash flow for more than a decade to come.
Another important catalyst in the history of the growth of innovative industrial properties is the continued failure of cannabis banking reform at the federal level. Even though most Americans are in favor of national legalization of weed, its Schedule I status at the federal level means that most banks and credit unions will not offer basic financial services to stocks of grass. marijuana. As long as this remains the case, IIP can intervene with its sale-leaseback program.
As part of the sale-leaseback program, IIP acquires properties from multi-state operators (MSOs) for cash. He then re-leases the property to the seller. The deal allows MSOs to supplement their balance sheets with cash, while also offsetting the IIP of a number of established long-term tenants.
Since distributing its first quarterly dividend four years ago, Innovative Industrial Properties has increased its payout by 833%, while its share price has risen by over 1,600%. While repeat performance is highly unlikely over the next four years, a juicier payout and higher share price is a distinct possibility.
Invesco Mortgage Capital: 11.7% return
If super high yield dividend stocks are your thing, mortgage REIT Mortgage capital Invesco (NYSE: IVR) and its 11.7% yield begs to be purchased.
Mortgage REITs are companies that borrow money at short-term lending rates and use that capital to acquire assets (mortgage-backed securities) with a higher long-term return. The goal here is to maximize the difference between the average return on assets held minus the average cost of borrowing. This difference is known as the net interest margin.
When the pandemic hit last year, Invesco found itself in a tough world as its portfolio was filled with commercial mortgage-backed securities and non-agency credit risk transfer assets. . A title that is not owned by an agency is not guaranteed by the federal government in the event of default.
However, management has strengthened over the past year and changed and now focuses almost exclusively on agency titles. While the returns on agency assets are lower than those on non-agency securities, the protection against default is invaluable and provides Invesco Mortgage with the ability to use leverage to increase its profit potential.
Another thing to note about mortgage REITs is that they work particularly well in the early years of an economic recovery. Typically, economic rebounds are characterized by a steepening of the yield curve (i.e., long-term yields rise at a much faster rate than short-term yields), which tends to broaden the net interest margin of mortgage REITs. This is often a valuation expansion formula for mortgage REITs like Invesco.
Finally, Invesco may be gobbled up for 5% below its book value of $ 3.26 per share, as of last weekend. Although the book values of mortgage REITs can fluctuate, the book values are expected to increase over the next several years as the net interest margin increases. In short, this discount is a signal for investors to pounce on this very high yielding small cap stock.
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.