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

Finding high-yield dividend stocks often requires investors to look at companies that are out of favor for some reason. The key is to avoid the ones facing insurmountable troubles, and instead focus on those where the problems appear likely to be temporary. ExxonMobil (NYSE: XOM) and VEREIT (NYSE: VER) are great examples of the latter. What's most exciting about both, however, is that each appears to be effectively working through its headwinds. That makes this a good time to consider adding them to your dividend-stock portfolio -- before Wall Street really catches on to the successes they've been having.

Turning a giant ship

Exxon, with its $340 billion market cap, is one of the largest integrated energy companies on planet Earth. It's simply too large to turn on a dime; shifting direction takes it some time. However, the company has long been managed with a conservative bias. For example, long-term debt makes up less than 10% of its capital structure. That provides Exxon with ample flexibility to deal with whatever challenges appear, from volatile energy prices to the need to invest in moving in new strategic directions.

The company's big problem in recent years has been falling oil production. Between 2015 and 2018, Exxon's output dropped roughly 6% from around 4.1 million barrels of oil a day to a little over 3.8 million. That's not the kind of trend that investors like to see, and the stock performance reflected their displeasure. Share prices remained under pressure even though Exxon promised that it was working on the issue, with plans to invest as much as $30 billion a year in the business -- developing onshore U.S. energy assets, offshore oil drilling, and natural gas projects (as well as on downstream processing and chemicals operations).

For a time, the company had little to show for those efforts, and investors pushed the stock lower and the yield above 4% -- the high end of Exxon's historical range. But Exxon's production increased between the second and third quarters of 2018 and again between the third and fourth quarters to around 4 million barrels of oil a day. And that was on the strength of just one of its major investment areas: U.S. onshore drilling. It looks increasingly like the energy giant has started to turn the corner.

That makes now an ideal moment for long-term investors to act: The stock is up a hefty 18% or so in 2019, but its yield is still in the 4% range. This suggests that investors are starting to recognize the improvements being made to the business, but there's still time to catch Exxon's high yield. Note, too, that the company is has put up a 36-year streak of annual dividend payout hikes. That's a record its closest peers can't match.

Dealing with the overhang

Next up is VEREIT, a net lease real estate investment trust (REIT) that got itself into legal trouble a few years ago. Typically, the net lease business is considered low risk because lessees are responsible for covering most of the costs of the properties they occupy. However, VEREIT was previously known as American Realty Capital Properties, a business built via a series of rapid acquisitions. The pace was frenetic and, eventually, caught up to the company in the form of an accounting error. When news of the issue broke in 2014, the stock crashed, and the dividend was suspended for a couple of quarters. The current 6.5% yield (after the dividend was reinstated at a lower payout level), perhaps understandably, is toward the high end of its peer group. The error, however, led to huge changes in the portfolio and the management team.

After bringing in industry veteran Glenn Rufrano to be its new CEO, the company changed its name and set out to fix the core business. It sold some of the less desirable assets it accumulated during the acquisition binge, reduced leverage, and got its balance sheet back to investment-grade status, and management set out clear goals for the property portfolio. Essentially, Rufrano gave Wall Street a yardstick by which to measure the company's operating performance. He and his team have basically achieved their primary targets at this point. And, after several years of divestitures, it looks like VEREIT is ready to start adding assets to its nearly 4,000 property portfolio again.

The one big financial overhang that still has yet to be fully resolved is a series of lawsuits that stemmed from the accounting error. But the scope of the legal issues is starting to become clear, with VEREIT having settled with roughly a third of its shareholders for around $250 million. Assuming it can achieve similar results with future settlements, that will put the price of putting those troubles to bed at (being conservative) around $1 billion. The REIT has more than that available on its $2.1 billion revolving credit facility.

Meanwhile, the dividend is only projected to eat up around 80% of 2019 adjusted funds from operations. That's a purposefully conservative payout ratio, to ensure that the dividend can withstand the impact of any further headwinds the company might encounter (like resolving the remaining legal disputes). Once its legal difficulties are in the past, investors are likely to price this REIT more in line with peers. If you act now, however, you can collect that 6.5% yield while you wait for its capable management team to resolve the final big issue on its plate.

Just a little uncertainty

There's no question that Exxon and VEREIT are still dealing with adversity today. However, the management teams at both companies have made material progress in setting them on new paths. At this point, the progress is starting to show up, and once-hazy futures are beginning to get a little more clear. Investors who can handle the uncertainty that still remains at both companies can buy in now, and collect their generous yields before Wall Street fully catches on to the notable progress they're making.

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Reuben Gregg Brewer owns shares of ExxonMobil and VEREIT. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.