Investment income is hard to come by these days. The 10-year Treasury yield has crept higher but still offers a measly 1.6% yield. Investment-grade corporate bond issuers aren’t much more generous.
This has left many investors venturing out along the risk spectrum in search of lower-risk equities that offer above Treasury yields and modest growth potential. S&P 500 index funds are one way to do it, but with the benchmark climbing to fresh record highs, the yields on such ETFs have slipped well below 2%.
Fret not. Within the S&P 500, there are still about a dozen companies that have forward dividend yields of at least 5%. Most are in defensive sectors or have stable profit streams that can sustain their lofty dividends. Here are three of the most compelling buys for long-term income investors.
What is Lumen Technologies’ Dividend?
Lumen Technologies (NYSE:LUMN) is one of two S&P 500 stocks offering 8% dividend yields. Telecom services peer AT&T is the other. It’s a bit of a toss-up as both have exposure to the same end markets, but at a fraction of AT&T’s size, Lumen Technologies has greater flexibility, i.e., growth prospects.
Another reason to like Lumen is its focus on business, wholesale, and government customers of all shapes and sizes. It provides communications and IT solutions to this diverse group which tends to have more extensive telecom needs and bigger budgets. The remaining 30% of Lumen’s revenues come from the sale of broadband and related services to consumers.
Together the customer base is expected to generate earnings per share of $1.66 this year much of which will be returned to shareholders in the form of dividends. The company has a forward payout ratio of 60% meaning an even $1.00 per share is slated to wind up in investors’ pockets.
The deployment of 5G networking to businesses and consumers alike is still in the early stages. There are likely to be many telecom service winners including Lumen Technologies. And with a 7.5x forward P/E ratio, this is a high dividend large-cap worth calling on.
Is Kinder Morgan’s Dividend Stable?
No S&P 500 energy company has a higher dividend yield than Kinder Morgan (NYSE:KMI). The oil & gas midstream operator’s 6.1% yield stems from a generous 81% dividend payout ratio. Better yet, its dividend has been raised in each of the last four years despite the rocky economic conditions.
What you won’t get with Kinder Morgan is flashy growth numbers, but you will get steady profit results. The company consistently records quarterly EPS of around $0.25 and is forecast to do the same in each of the next several quarters.
The stability of the business relates to the fact that Kinder Morgan operates one of the largest natural gas transmission networks in North America. The 70,000 miles of pipelines along with its gas storage assets are sources of reliable revenues. Customers across the continent depend on Kinder Morgan to transport and receive natural gas, crude oil, petroleum, carbon dioxide, and more.
Kinder Morgan’s balance sheet has room for improvement with half of the capital structure comprised of debt. But as energy production and economic activity continue to rebound, improving cash flows should help it pare down debt. The company’s recent value-added acquisitions should also help stabilize the business and keep the dividends flowing.
Does Iron Mountain Pay a Dividend?
Iron Mountain (NYSE:IRM) is a real estate investment trust (REIT) specializing in records management and data center solutions. Whereas traditional REITs focus on properties within the U.S., Iron Mountain has over 200,000 customers around the world. It is this global diversification that offers investors peace of mind as to the stability of the dividend.
The 5.4% forward yield on Iron Mountain is still high despite the stock’s 56% year-to-date climb. The company has benefitted from rising demand for data center space during the pandemic as businesses look to build out their digital capabilities. Earnings surged to record levels last year and are expected to remain strong over the next few years.
What makes Iron Mountain a compelling income play is the fact that its records management businesses account for most of its recurring revenue. This is complemented by the faster-growing data center business which is in the early innings of a multiyear growth story.
As a REIT, Iron Mountain management understands the dividend is often what attracts investors. It has remained committed to the dividend by boosting it in each of the last nine years.
The company continues to operate from a position of financial strength with a whopping $2.1 billion in liquidity that will allow it to simultaneously distribute large dividends and pursue growth opportunities. The stock’s price chart may look like it has reached a peak, but Iron Mountain is likely to keep climbing higher over the long haul.
Before you consider Lumen Technologies, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Lumen Technologies wasn't on the list.
While Lumen Technologies currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.
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