3 High-Yield Dividend Stocks I'd Buy Right Now

By Markets Fool.com

Image source: Getty Images.

Continue Reading Below

Dividend stocks are the kind of investments that fit my investment style. There is something reassuring about those quarterly checks padding my portfolio that are completely independent of a stock's share price, and reinvesting dividends over decades is probably one of the most powerful tools we as individual investors have for building wealth. To be an effective dividend stock investor, you have to buy companies you can hold for a long time and reasonably expect them to increase payouts. It's even better when you can buy them at a time when they have high yields. That's why three stocks -- integrated oil and gas giant Total (NYSE: TOT), nitrogen fertilizer manufacturer Terra Nitrogen Partners (NYSE: TNH), and telecommunications giant Verizon Communications (NYSE: VZ) -- are high on my list of dividend stocks I would buy. Here's why.

Dragged down by peers

One Big Oil company that doesn't get as much credit as it deserves is Total. In part, that's because when you look at the other companies in the integrated oil and gas space today, things don't look great. Debt levels are increasing across the board, and dividend payouts are looking more and more precarious. Total, hoewever, has set itself apart a little in this regard as of late, and it makes it look like a pretty compelling investment today.

Integrated oil and gas companies have been increasing debt levels significantly as of late because they're trying to finish development and construction work on several large projects. Chevron, for example, is still plowing billions of dollars into its Gorgon and Wheatstone LNG projects that aren't slated to be fully operational until 2017 at the earliest. Total, on the other hand, has completed a large swath of development projects over the past 18 months that have had the double effect of drastically increasing production and lowering the amount of capital spending. With less going out the door, the company has been able to rely less on debt issuance to make ends meet and has set itself up rather well to handle the lower oil price environment compared to most of its peers.

Even though Total's financial performance has been much better than its competitors' in recent quarters, Wall Street still seems to be pricing this stock as though it's in bigger trouble than it is. With a dividend yield of 5.7%, Total looks like a solid pick I wouldn't mind adding to my own portfolio soon.

Continue Reading Below

Not your typical dividend stock

The first thing that you need to know about Terra Nitrogen Partners if you are looking at it as a potential dividend investment is that the company is structured as a variable rate master limited partnership. This means that the company's quarterly payout is not a fixed rate set by management but changes from quarter to quarter, based on the amount of cash it has left over after operations and maintenance spending each quarter. The drawback is that it isn't a set rate you can rely on from quarter to quarter, but it does keep the company from getting in trouble from overpaying when times get tough.

The reason that Terra Nitrogen is appealing despite its varying rate payout is that the company does have some inherent advantages. Its nitrogen fertilizer facility uses natural gas as its primary feedstock that -- thanks to the boom in shale gas in the US -- has been cheap for years and gives it a huge leg up over other nitrogen fertilizer manufacturers that use other, more expensive feedstocks. It also helps that the partnership is completely debt free, so the company is burdened with interest expenses that cut into the amount of cash it can hand back to investors. These two factors have been the driving forces of Terra Nitrogen's results for the past few years, and when you sprinkle in an efficiently run operation, you get a high rate of return and dividend payments that have remained relatively high for close to a decade.

TNH Return on Equity (TTM) data by YCharts.

For dividend investors who don't mind a little variability from time to time, Terra Nitrogen looks to be a pretty solid long-term investment I own and would like to own more of today.

Sometimes it's good to be Goliath

Verizon Communications may have the smallest dividend yield of the group here, but for a company of Verizon's size and the cash flow stability that comes with it, a dividend yield of 4.3% is nothing to scoff at. Verizon has a pretty comfortable lead over AT&T for the largest subscriber base for wireless customers in the U.S., and that subscriber base continues to grow, with the lowest churn rate of the big four carriers in the U.S. This alone provides a decent cash flow platform to work from, but it also helps to fend off its competitors because it can outlast the others in the event of pricing competition.

Verizon's size and scale over other wireless providers prevent the company from losing its existing position, but it's the growth of data usage and speed that has a chance to lead to huge growth for the company. In 2015, the average data use per smartphone was 2.4 GB per month; by 2020, that is expected to grow to 14 GB. If you've looked at your wireless bill lately, it's not hard to make the connection between meteoric data usage growth and bottom-line results for Verizon.

Verizon is the complete package when it comes to a dividend stock: large competitive advantages, a recurring revenue model from customers with high switching costs, and demand that is expected to grow pretty steadily for years to come. These are the kinds of factors I want in my dividend stocks.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Tyler Crowe owns shares of Terra Nitrogen.You can follow him at Fool.comor on Twitter@TylerCroweFool.

The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Chevron and Total. 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.