3 Stocks to Buy With Dividends Yielding More Than 7%

By Markets Fool.com


Photo: FLY Leasing.

Continue Reading Below

It's hard to beat dividends when investing in the stock market. The market, or any particular stock, will fluctuate over time, sometimes significantly. But a healthy, growing company will keep paying out its dividends -- and will increase them over time, too. In this prolonged period of ultra-low interest rates, dividends also offer compelling income streams, with many yields topping interest rates -- and inflation, as well. So, when looking for stocks to buy, consider dividend payers.

Here are three promising companies, each of which recently offered the yields topping 7%.

FLY Leasing Ltd.

First up is FLY Leasing Ltd, recently yielding 7.2%. Based in Ireland, it's a relatively small company, with a market capitalization recently below $600 million. It has averaged 15.6% annual stock-price growth over the past five years, though it's roughly flat over the past year. It leases commercial aircraft to airlines that either don't want to or can't shell out big bucks for new planes -- and it can be a good deal for the airline, too, as leasing younger planes can deliver cost-savings through improved fuel-efficiency. (A new airplane can cost several hundred million dollars, after all.)

In its third quarter, FLY Leasing posted revenue growth of 33% year over year and fleet utilization of 100%. It bought five new planes in the quarter, bringing its total to 121, with its fleet sporting an average age of eight years. Its average lease term grew to five years. Its fourth quarter's results will be posted in March, but in mid-February management noted:

Continue Reading Below

Looking forward, FLY will continue to grow its fleet in 2015 and beyond, maintaining a portfolio of the most popular aircraft types in use by airlines worldwide. Due to stronger passenger demand and reduced fuel prices, the global airline industry is in a healthy financial state, which is enhancing the demand for leased aircraft. As a result we are seeing increasing leasing revenues and strengthening aircraft values. We expect FLY's business to benefit from these factors.

The stock is attractively priced, too, with a recent P/E ratio near 10, well below its five-year average of 26, and forward-looking P/E of just 6. It has taken on a lot of debt, though, buying airplanes.


Photo:Hammerin Man, via Wikimedia Commons.

Seaspan Corporation

Next we have Seaspan Corporation, recently yielding 7.6%. Founded in 2005 and based in the Marshall Islands, it's a shipping specialist with an operating fleet of 83 ships (average age: about 6.2 years) that transport containers hither and yon. (It also has 26 new container ships arriving by the end of 2016.)

There's a lot to like about Seaspan, such as its robust revenue growth, with revenue more than tripling since 2008. Earnings, dividend payouts, and free cash flow have fluctuated considerably over the past decade, though. Profit margins have fluctuated, too, but recently have been solid, with gross margins topping 75% and net margins in the mid-teens. More than its rivals, it likes to ink long-term, fixed-rate contracts and can thus generate more steady revenue.

In its last reported quarter (its next report is due in early March), it posted earnings per share up 29% year over year and noted, impressively, that it "achieved vessel utilization of 99.2% and 99.1% for the three and nine months ended September 30, 2014, respectively, or 99.6% and 99.5% if the impact of off-charter days is excluded."

Seaspan has seen some competitors declare bankruptcy in recent years, in part because of overcapacity, leaving some market share up for grabs. Some worry about its debt level, but bulls like that global shipping is expected to grow by about 6.7% in 2015, which bodes well for Seaspan. Current low fuel costs are also a great tailwind at the moment.


Photo: Starwood Property Trust.

Starwood Property Trust

Finally, consider Starwood Property Trust, recently yielding 7.9%. It's a mortgage real estate investment trust, or mREIT, that can benefit from rising interest rates -- which is a good thing, since we're in an environment of low ones. That's because much of its loan portfolio features floating interest rates tied to prevailing short-term rates.

It also has good management, led by Barry Sternlicht, who also heads Starwood Hotels and Resorts Worldwide, from which Starwood Property Trust was spun off. The company focuses mainly on hotels (surprise, surprise) and offices, and by not taking on too much debt, it's being run relatively conservatively, compared with some peers.

If you're interested in this mREIT, read up on tax rules that apply to them, as they're not treated like ordinary stocks. For one thing, REITs are expected to pay out at least 90% of their income in the form of dividends. You can avoid the tax rules by just holding the stock in a Roth IRA, though, where you'll ultimately withdraw funds tax-free.

Dividend income can really juice your portfolio returns, and these stocks offer hefty payouts.

The article 3 Stocks to Buy With Dividends Yielding More Than 7% originally appeared on Fool.com.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.