Buying and holding solid high-yield dividend stocks is arguably the best way to predictably generate wealth over the long term. But finding the best dividend stocks our market has to offer is easier said than done -- unless you know where to look.
To that end, we asked three top Motley Fool investors to discuss some of their favorite stocks with high dividend yields. Read on to learn what they had to say about Verizon Communications (NYSE: VZ), AT&T (NYSE: T), and Omega Healthcare Investors (NYSE: OHI).
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An ever-growing telecom giant
Steve Symington (Verizon Communications): With shares down around 7% so far in 2017, Verizon isn't exactly a market darling right now. After all, the company lost postpaid wireless subscribers for the first time ever in Q1 with competition bearing down.
But Verizon quickly turned things around in the second quarter with the introduction of its new unlimited plans, while maintaining strong loyalty as evidenced by postpaid phone churn of 0.7% (its ninth straight quarter below 0.9%). And with the impending rollout of its 5G network over the next couple of years -- a move supported by its recent acquisition of wireless spectrum asset owner Straight Path Communications -- Verizon should be able to keep its loyal customers hooked for the foreseeable future.
At the same time, Verizon closed on its acquisition of Yahoo! last quarter to form a new media subsidiary called Oath, which will serve roughly a billion unique monthly users around the world through more than 50 brands including Huffington Post, Yahoo Sports, AOL.com, MAKERS, Tumblr, Yahoo Finance, and Yahoo Mail. Oath will add roughly $7 billion to Verizon's consolidated top line, and -- keeping in mind Yahoo! had already turned the corner to profitability just prior to joining Verizon -- should further bolster the bottom line, as Verizon expects to realize around $1 billion in annualized operating expense synergies through 2020.
Earlier this month, Verizon also increased its dividend for the 11th consecutive year, bringing its quarterly payout to $0.59 per share for an annual yield of 4.7% at today's prices. In the end, as Verizon continues to become a more ubiquitous part of our lives, I think Verizon stock is an excellent portfolio candidate for investors willing to take advantage of the recent pullback and let that dividend compound.
You're going to want to take this call
Danny Vena (AT&T): Having evolved from its days as a landline provider, AT&T has grown to become the second largest US wireless carrier with 33% of the market. It brings in plenty of cash to pay its generous dividend, which currently yields 5.3%. The company is also a Dividend Aristocrat, having increased its dividend in each of the last 32 years.
While some might be concerned about the payout ratio of 90%, it's important to put that into context. High non-cash expenses like amortization and depreciation tend to skew earnings. AT&T produced free cash flow of $15.8 billion over the last year, higher than its $13.15 billion in net income, so it has plenty of cash to pay the dividend.
AT&T has been increasingly interested in adding content to its bundle. It's acquisition of DirecTV helped make it the second largest provider of pay TV in the country and its DirecTV Now streaming service is nearing 500,000 subscribers. Wireless customers can also stream video on their mobile devices without it counting toward their data limits. AT&T is one of the first carriers actively rolling out 5G service, which will provide the company with another competitive edge.
It plans to branch out even further with its $85.4 billion proposed acquisition of Time Warner Inc. (NYSE: TWX), home of HBO, CNN, TNT, TBS, and Warner Bros. Studios. That deal is expected to close by year-end and gains the company a vast library of high-quality original content.
A dividend being driven by demographics
Cory Renauer (Omega Healthcare Investors Inc.): Adults over 65 are the fastest growing demographic in the U.S. and UK. Odds are they're going to drive demand for the facilities in this real estate investment trust's portfolio steadily higher for the foreseeable future.
Omega Healthcare Investors collects rent from 77 different operators that manage around 1,000 long-term care and skilled-nursing facilities. A few operators that have fallen behind on their rent are making investors nervous enough to drive this stock down to a price that offers a 7.9% yield.
Normally yields this high signal big financial trouble, but Omega's distribution appears on some solid ground. This top REIT stock has been able to raise its dividend for 15 consecutive years and during each of the past 20 quarters. Despite constant raises, four more quarterly dividend payments would only eat into around 75% total funds from operations management expects the REIT to generate this year.
Investors will want to know that this year's adjusted FFO expectations are predicting year-to-year growth to be flat to slightly positive. If Omega needs to evict more than one major tenant in the quarters ahead, it could lead to a temporary dividend freeze. With an aging population steadily raising demand, though, there's a good chance the stock at this price will provide a market beating total return over the long run.
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Cory Renauer owns shares of Omega Healthcare Investors. Danny Vena has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.