The Federal Reserve and Washington politicians have pumped the largest amount of stimulus money into the economy ever, and we’re not done yet as we wait on another package that may deliver upwards of $2 trillion.
And the packages thus far account for up to 35% of GDP. That’s more stimulus than the Great Recession of 2009 at 18% of GDP, World War I at 17%, and World War II, and the Great Depression package totaling 29% of GDP.
It typically takes a year for stimulus packages to kick in, so we’re looking at the middle of 2021, and we could be looking at growth of 5% to 6%, a number we haven’t seen since 2000.
Bottom Line: It’s getting scary out there and playing a little defense is never a bad idea during times like these.
Of course, there are multiple factors to consider when purchasing dividend stocks such as:
-History of raises
-Steady revenue & earnings growth
-Durable competitive advantages and-
There are additional criteria to consider including the industry, the amount of operating leverage in its business model, the amount of financial leverage on the balance sheet, the size of the company, and the current valuation multiple.
As noted there are a variety of variables and the one we all watch closely are interest rates or yield percentage.
Interest rates have been historically low for the last 25 years and the S&P 500 has been offering about 1.8% on average, and 10-year treasury notes are at .8%.
So we’re concentrating on stocks that offer roughly four times what the S&P is delivering, in the neighborhood of 8%, accounting for the risk factors as much as possible as mentioned above.
You may want to consider these dividend powerhouses:
Bedrock Dividend Stock #1:
AT&T (NYSE:T) founded in 1875 and based in Texas is the world’s largest multinational telecom and digital entertainment company. Last year it generated $160 billion in revenue, and the company operates four divisions with 100 million subscribers.
In its third-quarter this year, 5 million domestic wireless net account additions were added during the quarter, and HBO and HBO Max subscribers topped 38 million in the U.S. and 57 million international subscribers. That’s two million above company expectations.
The DirecTV acquisition may be dragging down the stock but its telecom business is a “basic-need” and its wireless streaming service should both offset this drag and maintain a growth stream.
AT&T is a Dividend Aristocrat paying dividends for 36 consecutive years, with 2% annual increases in each of the last 5 years. Its current yield is 7.6%.
Bedrock Dividend Stock #2:
Main Street Capital (NYSE:MAIN), an investment firm that supplies long-term debt and equity to lower middle-market companies and debt to middle-market businesses. Main Street furnishes financial services to support management buyouts, recapitalizations, growth, and acquisition financing.
It manages over $4 billion in its portfolio of 200 companies, with 90% of its debt investments secured through a first priority lien. Its low cost of borrowing is the key to its advantage in the marketplace.
Since its IPO in 2007, it has paid monthly dividends and has increased dividends at a 4% annual rate over the last five years and increased its monthly dividend by 2.6% in February 2019. The current yield stands at 8.36%.
Bedrock Dividend Stock #3:
National Health Investors, Inc. (NYSE:NHI), a healthcare REIT incorporated in 1991, finances and owns healthcare properties such as assisted living facilities, senior living campuses, skilled nursing facilities, specialty hospitals, entrance-fee communities, and medical office buildings.
The REIT owns 200 properties of which 60% are assisted living communities and the balance are skilled nursing facilities. About 30 healthcare operators rent the properties with long-term leases and annual escalators making cash flow more secure and predictable.
The aging U.S. population is expected to double in the next 20 years securing the industry’s future, long-term growth, and immunity to economic instability.
National Health Investors has upped its dividend for 10 consecutive years and has delivered 6.5% annual dividend growth over the past decade. Its current yield sits at 7.7%.
There are many high dividend stocks available in the market each possessing risks and benefits.
For further reading…
Some of the most popular high yield stocks can be found in these markets:
REITs, Real Estate Investment Trusts, pay no federal income tax as long as they payout 90% of their taxable income as dividends. There are a variety of REITs including, apartments, offices, hotels, nursing homes, storage, and others.
Master Limited Partnerships (MLPs) was created to encourage investment in capital-intensive industries like energy, pipelines, and storage tanks. They pay no income taxes but you pay taxes on your share of income, as most of their cash flow is paid out as cash distributions.
Business Development Companies (BDCs), are closed-end investment funds operating like REITs. Their purpose is to raise funds from investors and make loans to middle-market companies that lack access to non-investment grade credit for growth purposes.
Closed-end Funds (CEFs) a type of mutual fund traded on the stock exchanges. Assets may be invested in stocks, bonds, and other securities managed by a portfolio manager. Most use leverage to increase the amount of money they generate.
YieldCos, a pass-through entity created more recently to purchase and operate renewable power plants, like wind, sun, and hydroelectric, that sell the energy they create to utility companies.
Utilities & Telecom Sectors, generally low growth, and mature businesses that return the majority of their cash flow to shareholders in dividends at attractive rates to stimulate investor’s interest.
Bottom Line: We dove into some detail for you on this topic of dividend stocks, due to the complexities involved in determining the real value of any given dividend stock and the pitfalls you may encounter.
There are additional sources available to aid you in your research including Dividend Safety Scores, and DIVCON. We encourage you to use all means available to you before you invest during this difficult time.
The BLI Staff