In this article we discuss 10 best high yield stocks to buy now. You can skip our discussion of why do we think itâ€™s a good strategy to invest in dividend stocks in 2021 and go directly to 5 Best High Yield Stocks to Buy Now.
Is Dividend Investing a Good Strategy in 2021?
There is a lot of debate around the merits and long-term viability of dividend investing. The crux of this debate is this: a dividend is not free money. In reality it is a transfer of money from a company to you. That comes at a cost. For example, letâ€™s say a company is worth $1000 with 100 shares ($10 per share). Say this company is paying a dividend of $1 per share. When this dividend is paid, the companyâ€™s worth actually declines by $100 ($1/share * 100 shares). So the total value of the company is now $900. Dividend investing is based on a trade-off. Instead of putting money into long-term growth projects that will drive its stock price higher and increase returns, a company might decide to start paying back its shareholders. Usually, companies that are offering consistent dividend are mature, with little long-term growth prospects. On the other hand, famous companies with explosive growth prospects donâ€™t offer any dividends (think Alphabet, Facebook, Amazon, Biogen, Tesla). But the core of the argument against dividend investing stands on a key assumption: dividend stocks are not investing enough for their future growth. The answer to this argument lies in understanding a key financial metric known as payout ratio.
Why Prefer Dividend Stocks with Low Payout Ratios?
Thatâ€™s why in this article we are going to talk about only those high-yield stocks that have payout ratios of 100% or less. A low payout ratio is a positive signal and shows that the company is reinvesting a major chunk of its earnings into expanding operations. If a stock has a payout ratio of over 100%, itâ€™s a red flag as it shows the companyâ€™s dividend could be unsustainable in the longer run. A payout ratio of over 100% shows that a company is paying a dividend more than its earnings can support.
The Rising Appeal of Dividend Stocks
Despite all the skepticism around dividend and income investing, the appeal of high-yield dividend stocks with strong track record is growing. With a raging pandemic worldwide, increasing economic volatility rising and uncertainty in financial markets, investors have started to prefer stocks that pay steady streams of income. The Federal Reserveâ€™s decision to keep the interest rates low is also increasing the attraction of dividend stocks.
Lenox Wealth Advisorsâ€™ David Carter said in an interview that collecting dividend payments from quality stocks is a solid way to increase your returns and financial positions, especially when the markets are uncertain â€œWeâ€™re actually buying a lot more dividend stocks now. In a world of slow economic growth and political uncertainty, weâ€™re trying to find ways to generate returns,â€ Carter said.
Investors are rapidly diversifying their income streams to hedge against the rising volatility. Even the smart money is not safe from the risks. The hedge fund industryâ€™s reputation has been tarnished in the last decade during which its hedged returns couldnâ€™t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkeyâ€™s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. Thatâ€™s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Dividend stocks as a whole are consistently posting stronger returns when compared to the broader market. Heartland Advisors in a detailed study utilized monthly and annual value-weighted total returns of non-dividend stocks and dividend stocks from a period of 1928 through 2019. The study divides major U.S. companies into quintiles by dividend yield. The conclusion shows that the second-highest-yielding group beat the market most consistently each year over several decades.
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Lets start out list of 10 Best High Yield Stocks To Buy Now. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy. We choose only those dividend stocks that have a yield of over 5% and a payout ratio of 100% or less.
10. Plains All American Pipeline, L.P. (NASDAQ: PAA)
Dividend Yield: 8.06%
Payout Ratio: 28.69% (Trailing 12 Months of Earnings)
Texas-based Plain All American Pipeline offers services in oil pipeline transportation, marketing, storage, LPG and natural gas sectors in the U.S. and Canada. In December 2020, the company switched from NYSE to The Nasdaq Global Select Market to reduce costs. In November 2020, PAA stock rallied after the company announced a 500 million stock repurchase program and also posted better-than-expected Q3 results.
A total of 8 funds tracked by Insider Monkey held stakes in Plains All American at the end of the third quarter.
9. Universal Corp (NYSE: UVV)
Dividend Yield: 6.53%
Payout Ratio: 100.8%
Virginia-based Universal is a tobacco products company. It processes flue-cured and burley tobacco. The company has a major stake in oriental leaf tobacco company Socotab, LLC. Major tobacco player Altria Group is one of the biggest customers of UVV. In the second quarter, non-GAAP EPS totaled $0.37. Revenue in the period declined by over 20% to $377.03 million.
Universal is one of the 10 best high yield stocks to buy now. Overall, 12 hedge funds tracked by Insider Monkey held stakes in UVV at the end of September 2020.
8. Brandywine Realty Trust (NYSE: BDN)
Dividend Yield: 6.62%
Payout Ratio: 42.94%
Pennsylvania-based Brandywine Realty Trust is REIT that primarily invests in office buildings in Philadelphia, Washington, D.C., and Austin. As of the end of 2019, the company owned stakes in 173 properties containing 24.3 million net rentable square feet. Brandywine Realty Trust reported FFO of $0.36 in the fourth quarter, in-line with the Streetâ€™s estimates. Revenue in the period slid over 13% to $126.82 million, missing the Streetâ€™s forecast by $1.42 million.
A total of 14 hedge funds tracked by Insider Monkey entered the fourth quarter with BDN shares on their portfolios. Among these hedge funds is Israel Englanderâ€™s Millennium Management, which increased its hold in the company by over 4000% in the third quarter.
7. PPL Corp (NYSE: PPL)
Dividend Yield: 5.96%
Payout Ratio: 82.46%
Pennsylvania-based PPL provides electricity to about 10 million customers in Pennsylvania, Kentucky, and the United Kingdom. It controls about 8,000 MW of regulated electric generating capacity in Kentucky. In January 2021, the stock came to the spotlight amid news that it could become a potential takeover target after selling its U.K. electric distribution network operator PPD.
A total of 21 hedge funds tracked by Insider Monkey held stakes in the company at the end of the third quarter.
6.Navient Corp (NASDAQ: NAVI)
Dividend Yield: 5.15%
Payout Ratio: 30.19%
Delaware-based Navient services and collects student loans. The company was formed in 2014 following the split of Sallie Mae into two distinct entities, Sallie Mae Bank and Navient. The company services about 25% of the total student loans in the U.S. In January 2021, the company said it earned $0.97 in the fourth quarter, above the Streetâ€™s estimate of $0.83 cents.
As of the end of the third quarter, 22 hedge funds tracked by Insider Monkey were long NAVI, down from 27 funds a quarter earlier.
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Disclosure: None. 10 Best High Yield Stocks To Buy Now is originally published at Insider Monkey.