News of AT&T’s (NYSE:T) dividend cut as part of its restructuring may have investors in dividend stocks a bit concerned. For the past year, the Covid-19 outbreak had some worried that dividend cuts were coming for many high-yielding names. Admittedly, some major names, like BP (NYSE:BP) and Royal Dutch Shell (NYSE:RDS-A, RDS-B), wound up instituting such cuts.
But, overall, dividend reductions wound up being less than expected. Not even ExxonMobil (NYSE:XOM), which was borrowing money in order to maintain its dividend, enacted a cut. Now, we’ve reached “recovery mode” with the pandemic. Some of the hardest hit industries, like energy, have mounted an epic comeback.
Instead of cutting, many names with high yields are modestly increasing their payouts for 2021. Those who held AT&T for the dividend may have been burned. But, there are plenty of solid substitutes to choose from across many sectors.
So, which dividend stocks with relatively-safe high-yields should you consider? These nine remain relatively-safe income plays:
- British American Tobacco (NYSE:BTI)
- Chevron (NYSE:CVX)
- Iron Mountain (NYSE:IRM)
- Kinder Morgan (NYSE:KMI)
- Lumen Technologies (NYSE:LUMN)
- MGM Growth Properties (NYSE:MGP)
- Altria (NYSE:MO)
- ONEOK (NYSE:OKE)
- Williams Companies (NYSE:WMB)
Dividend Stocks: British American Tobacco (BTI)
At first glance, UK-based British American Tobacco doesn’t appear to be in a healthy position. Namely, due to the proposed ban on menthol cigarettes in the United States. Makers of Newport cigarettes, the company controls two-thirds of the menthol market, which makes up 20% of its annual profits.
So, with one of its flagship brands potentially being destroyed by new regulations, why would I consider BTI stock to be a “safe” high-yielding dividend stock? Namely, it could be years before the ban gets through the rule-making process. Even then, big tobacco may have plenty of time after that to delay or prevent its implementation.
This may be an issue that affects British American Tobacco and its high-yield down the road. But, it should not be an immediate concern. Its current 7.72% forward yield is safe for now. Not only that, this out-of-favor stock could offer up some gains along with an above-average yield.
Despite the secular decline of tobacco smoking in developed economies, its earnings are still set to grow in 2022. This could point to more dividend increases in the coming years. Also, with its diversification into cannabis, the company’s moves to diversify away from tobacco may help BTI stock, dirt cheap at a forward price-to-earnings (P/E) ratio of 8.5x, rise due to multiple expansion.
After a tough 2020, big oil stocks have made a stunning comeback. CVX stock is no exception, rising around 61% from its pandemic-related lows. Yet, while you may have missed the initial rebound, those looking for high-yield stocks with the potential to gain further may find opportunity here with this major integrated oil & gas company.
Sporting a forward yield of 5.03%, this may not be the highest-yielding one out there. Names like ExxonMobile (5.76% forward) have slightly higher payout levels. Yet, as this Motley Fool commentator made the case a few weeks back, Chevron may be the better dividend play among the major names in this space.
Less levered than its peers, the company may be able to juggle maintaining its current rate of payout. Meanwhile, heed calls from ESG (environmental, social, and corporate governance) investors, are pushing ExxonMobile to invest more in alternative energy.
That being said, it may be a while until Chevron raises its pay out once again. Earnings may be projected to bounce back, in tandem with oil getting back above $60 per barrel. Yet, as industry observers debate how much more runway oil prices may have, it may be a while before the oil and gas giant again raises its quarterly payout.
Dividend Stocks: Iron Mountain (IRM)
Iron Mountain, a leader in the records/data backup space structured as a REIT, is another stock that’s seen a stunning record from its initial “coronavirus crash” losses. Not only have shares bounced back. They have moved sharply higher (to around $45 per share) from their pre-pandemic price levels (around $30 per share).
Given this is a high-quality dividend stock, offering up a high forward yield (5.6%), that’s no surprise. In hindsight, investors who bought this during the March 2020 panic in hindsight made a shrewd move gobbling up shares. Covid-19 may not have been an unexpected tailwind for the company. But, its quarterly results saw minimal impact during the “stay at home” lockdown period. It’s clear this is a top tier business with a deep economic moat, seemingly at minimal risk of reducing its rate of payout.
It may be mostly known for its analog data storage business. But, as one Seeking Alpha commentator noted in a neutral take on IRM stock, the company’s budding data center segment could be an area that someday helps move the needle.
With the recent run-up, gains from here may be more gradual. But offering up an above-average yield in what’s still a near-zero interest rate environment, consider this another one of the top shelf dividend stocks to keep top of mind.
Kinder Morgan (KMI)
At around $18 per share, KMI stock is getting close to retracing its pre-pandemic price levels. But, this midstream (pipelines and other energy transportation) play is another of the high-yielding, large cap energy stocks that rode out last year’s storms without having to cut its rate of payout.
With a forward yield of 5.83%, consider Kinder Morgan another top dividend play you won’t lose sleep over. With its projected 2021 distributable cash flow (DCF) of between $5.1 billion and $5.3 billion, or between $2.26 per share and $2.34 per share, it has more than enough coverage for its current annualized payout of $1.08 per share.
Sure, much of this may have had to do with its $1 billion windfall from the winter storms in Texas earlier this year. Only time will tell whether results, which have seen a nice boost year-over-year, will fall back in subsequent quarters. At the very least, barring any additional windfalls, we may not see the company once again increase its payout rate.
Yet, while that may wind up being the case, don’t make that the reason you skip out on it. A stable dividend payer, those looking for relatively safe high-yield have a great option when it comes to KMI stock.
Dividend Stocks: Lumen Technologies (LUMN)
Telecom company Lumen is a name I’ve covered many times in recent months. So far this year, it’s seen a nearly 48% bump. The reason? Investors have increased their confidence that its pivot to fiber optics, while de-levering its balance sheet, and maintaining its high yield (7.23%), goes off without a hitch.
Admittedly, it’s not 100% fair to say that this is a stock that’s managed to avoid a dividend cut. Its rate of payout (25 cents per quarter), has stayed the same since March 2019. But, prior to that, its rate of payout was more than double, at 54 cents per quarter. This may imply that, if further hiccups come about, the company may be forced to reduce its dividend yet again.
Also, some analysts, like Oppenheimer (NYSE:OPY) Analyst Timothy Horan, have soured on the stock in recent weeks. The analyst downgraded LUMN stock last month. His rationale? Concerned that its legacy business is declining faster than its fiber business is growing, Horan believes revenue numbers will at best tread water over the next five years.
Yet, even with this concern, shares may have room to head higher from here. With valuation cheap (forward P/E of 8.8x), and the potential that many burned AT&T investors shift to it as their high-yield telecom play of choice, Lumen Technologies still looks to be a solid dividend stock.
MGM Growth Properties (MGP)
MGM Growth Properties was another dividend play in a hard-hit industry that proved resilient. With the pandemic not getting in the way of it collecting rent on its properties, the casino REIT saw little impact in its financial results during the worst of lockdowns.
And, more importantly, it has not only maintained, but slightly increased, its rate of payout over the past few quarters. Currently yielding 5.51%, MGP has continued to climb, in anticipation of the full “travel reopening” slated to happen later this year. But, even with this rally, shares may have more room to run above today’s prices (around $36 per share).
How so? As it continues to make deals accretive to AFFO (adjusted funds from operations), MGM Growth has potential to further increase its rate of payout. Sure, there may be some lease concentration concerns. Unlike Gaming & Leisure Properties (NASDAQ:GLPI), which has made deals with other operators besides its former parent, Penn National (NASDAQ:PENN), all of this casino REIT’s properties are leased by a single operator, its former parent, MGM Resorts (NYSE:MGM).
But, given the financial strength of its tenant, and this company’s stable leases (with built-in escalations), expect this to remain one of the more solid high-yield dividend stocks out there.
Dividend Stocks: Altria Group (MO)
Previously shunned by investors, tobacco giant Altria has since seen its shares bounce up around 20% year-to-date. However, the aforementioned menthol ban news, coupled with talk of the Biden administration forcing a cut in the amount of nicotine in cigarettes, shares have struggled to move above $50 per share.
Shares may hold steady from here in the near-term. Concerns about the secular decline of its legacy business continues. The recent talk of further regulation amplifies these concerns. But, those willing to look past the controversy, and buy this stock are being amply rewarded with its still-fat payout. Its 7% yield may signal that it will, at some point, have to implement a dividend cut.
Sure, its efforts to diversify into e-cigarettes and cannabis, via investments in Juul and Cronos Group (NASDAQ:CRON), haven’t quite yet panned out. Even so, this concern looks to be overblown. Again, like with the proposed menthol ban, recent talk of reducing nicotine levels may take years to result in actual changes.
Like with several of the high-yielding dividend stocks discussed here, the chances of big payout increases may be minimal. The decline of its legacy business remains at risk of accelerating. Yet, for the time being, the high yield of MO stock remains safe. And, as interest rates remain low, chances are its current payout is enough to keep shares at least steady at current price levels.
Moving higher on the heels of rising oil prices, those who bought high-yield ONEOK earlier this year have generated solid returns. From both share price gains, as well as from its dividend payout. Yet, with its 7% yield today, investors late to the party may still find the natural gas pipeline operator to be a worthwhile buy.
Why? First, with its distributed cash flow set to come in at between $2.14 billion and $2.44 billion ($4.80-$5.17 per share) this year, it has plenty of coverage for its current rate of payout ($3.74 per share).
Second, with the company bullish on future demand, it’s adding to its natural gas storage capabilities. As the company continues to improve its bottom line, the payout rate isn’t the only secure part. We could also see its dividend, which has grown at an average rate of 8.83% per year over the past five years, continue to move upwards.
In turn, OKE stock, up around 41% year-to-date, could have room to gain further from its present price levels (around $54 per share). Granted, much of the increased demand for natural gas storage hinges on the price of said commodity remaining at or above $3 per million BTUs. A slide back to prior price levels (under $2 per million BTUs) may do serious damage to this stock’s bull case.
Dividend Stocks: Williams Companies (WMB)
WMB stock may not be as cheap as it was when InvestorPlace’s Alex Siriois wrote about it back in February. But, the oil and gas pipeline stock, today sporting a 6.1% yield, remains one of the best high-yield dividend stocks out there.
Increasing its guidance, much like Kinder Morgan and ONEOK have done, Williams Cos. is more than able to maintain its current rate of payout. Focused on natural gas, it too benefits from the possible continued boost in its demand, as exploration and production (E&P) companies ramp up their natural gas projects.
Will this result in even higher payout for WMB stock? Right now, it’s too early to tell. Increased demand may signal that earnings are set to grow. But analysts are expecting earnings to fall slightly, from $1.30 per share, to $1.23 per share, between 2021 and 2022. This may limit how much higher its current rate of payout (41 cents per quarter) expands over the next year or so.
With regards to increased dividends, it’s still a “wait and see” situation. But, given the current trends in the midstream space, its dividend is likely secure. In short, consider WMB stock another solid play for investors looking for yield in the energy space.
On the date of publication, Thomas Niel held long positions in LUMN and MO. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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