Dividend investing is attractive because it offers an income stream but it also has a downside during market sell-offs: dividend payouts often don’t compensate for share price declines.
In response to the recent market turbulence, some investors are hunting for dividend stocks to limit portfolio volatility but the key is to find the right types of income-generating stocks. Specifically, when choosing dividend stocks, you want to consider industry strength, long-term expected earnings growth, cash flows, and debt-to-equity ratios. Otherwise the risk of buying a dividend yield trap is high.
If a dividend yield seems too good to be true, it probably is. With that in mind, let’s discuss 3 high yield dividend stocks to hold forever potentially.
1. Store Capital
Store Capital (NASDAQ: STOR) caught the attention of Warren Buffett and many other well-respected investors because of its dividend and strong business model.
It is an internally managed real estate investment trust (REIT) and “the leader in middle-market real estate capital and net lease solutions.” Currently, the company has over 2,900 locations, focusing on service-oriented businesses that are not easily disrupted by technological change and disruption.
STOR can continue to scale based on the estimated addressable market for net-lease properties, which is around 2 million or approximately $3.9 trillion. This scalability is just one of the reasons Berkshire Hathaway invested $377 million in STORE Capital, representing 9.8% of total shares. In addition, STOR offers a generous quarterly dividend of $0.38, which represents a 5.64% annual dividend yield.
STOR management has a rather aggressive growth strategy. Its extensive and growing portfolio helps the company maintain a relatively low-risk business model for the real estate sector, which is reassuring long term.
Shares of STOR have increased by more than 30% over the past five years. However, many believe the best is yet to come. A discounted cash flow analysis reveals 10% upside potential to $30.28 per share. And while you’re waiting the 5.6% dividend payout is a real bonus.
2. Medical Properties Trust
Medical Properties Trust (NASDAQ: MPW) is another REIT that should be on your radar. This self-advised trust focuses on acquiring, developing, leasing, and making other investments, specifically in healthcare facilities.
MPW has created a unique niche in the U.S. economy’s largest and fastest-growing segment as a global leader in hospital finance. Unlike other REITs, MPW provides capital to care facilities through long-term, triple net leases and 100% financing.
As a dividend stock, MPW currently offers investors a quarterly dividend of $0.29. At the time of this writing, that’s an annual dividend yield of 6.24%, which has increased yearly since 2013.
This stock is particularly attractive for long-term investors, as MPW has a large addressable market and a proven business model. In the United States, the hospital real estate market is estimated to be worth as much as $1 trillion.
Over the past five years, shares of MPW have increased by more than 40%, a growth pattern that will likely continue. A discounted cash flow forecast analysis shows upside to $23.40, representing 26% upside from current levels.
Verizon (NASDAQ: VZ) is another stock that offers a reliable dividend.
When the pandemic struck, and some companies were forced to eliminate dividends, but Verizon maintained its 15 consecutive year streak. One reason is the company’s ability to generate free cash flow.
In 2021, VZ ended the year with $19.3 billion in free cash flow. The quarterly dividend offered by Verizon is currently $0.64, a 4.98% annual dividend yield at the time of this writing.
Verizon’s financials look solid. Its operating revenue for 2021 was $133.6 billion — up 4.1 percent yearly. According to the company’s 1Q earnings for 2022, there is also record demand for fixed wireless broadband, wireless service revenue growth, and continued expansion of Verizon’s 5G Ultra Wideband network.
As a long-term investor, you may want to consider buying the dip. Shares have increased by nearly 11% over the past five years and are currently trading for $51.40. But the upside is as much as 24.8% to $64.00 per share according to our analysis of cash flows.