These High-Dividend Stocks Pay Double-Digit Yields
Who else is sick and tired of low interest rates?
I had an easy job back when I started at Income Investors. Even a savings account paid a decent yield. And if you ventured into the world of high-dividend stocks, you could always find safe, large income streams.
Not anymore. For me, lower yields mean more caffeine-fueled nights in a lamp-lit office. On my desk, you’ll often see a stack of corporate filings over a foot high.
I know from speaking with my readers that most of them struggle with today’s low rates. Bank CDs yield next to nothing. Bonds pay out only one or two percent. The average yield from stocks in the S&P 500 has dropped to about 1.8%.
The good news is, you can still find good payouts from the universe of high-dividend stocks.
Of course, that job has gotten harder with the stock market hitting all-time highs. It takes more digging than ever to find safe, high-dividend stocks.
But it’s worth it. You just have to be willing to turn over more stones. For investors putting in the extra effort, that can mean earning higher yields on their investments.
To speed up the process, I often turn to a simple (but highly effective) stock screen. Each month, I run a search for high-dividend stocks with high distribution coverage ratios of at least 100%. This gives me a list of companies that not only pay decent yields, but also generate enough earnings to continue funding those payouts.
I just ran the screen on a fresh pool of double-digit yielders. So let’s dig into the results.
High-Dividend Stock Screen Results
| Company Name & Stock Ticker | Yield | Coverage Ratio |
| Tremont Mortgage Trust (NASDAQ:TRMT) | 15.1% | 125% |
| EnLink Midstream LLC (NYSE:ENLC) | 13.9% | 131% |
| Amplify Energy Corp (NYSE:AMPY) | 13.2% | 540% |
| Oasis Midstream Partners LP (NASDAQ:OMP) | 12.4% | 155% |
| B&G Foods, Inc. (NYSE:BGS) | 11.7% | 142% |
| A. H. Belo Corp. (NYSE:AHC) | 10.9% | 184% |
| Armour Residential REIT, Inc. (NYSE:ARR) | 10.8% | 167% |
| Two Harbors Investment Corp (NYSE:TWO) | 10.7% | 166% |
| Annaly Capital Management, Inc. (NYSE:NLY) | 10.4% | 211% |
| CNX Midstream Partners LP (NYSE:CNXM) | 9.9% | 155% |
(Source: Google Finance and Recognia Inc., last accessed January 24, 2020)
As always, I have to remind you that stock screens only uncover ideas for further research. The above table doesn’t represent a series of “buy” recommendations.
I also prefer to evaluate businesses based on cash flow, not traditional profits. But for this exercise, it will suffice. Anyway, the screen returned an interesting list of high-dividend stocks.
Take mortgage real estate investment trust Annaly Capital Management, Inc. (NYSE:NLY), for instance.
This partnership borrows money from lenders at low interest rates and invests it in higher-yielding government-insured mortgages. The difference in interest rates, called the spread, constitutes the firm’s profits.
Admittedly, the 211% distribution coverage ratio is a tad misleading. The number comes from the company’s generally accepted accounting principles (GAAP) profit number. In reality, we need to make a number of adjustments to this figure.
This adjusted number, called core earnings, provides a better estimate of how much money the business can pay investors. For 2019, Annaly’s core earnings should come in around $1.05 per share. That just about covers the partnership’s $1.00-per-share annual distribution.
These core earnings, however, could surge in 2020. That’s because the interest rate that Annaly pays lenders has dropped in the past few months. If the Federal Reserve keeps lowering rates, that could mean even higher profits (and higher distributions) for Annaly.
Amplify Energy Corp (NYSE:AMPY) also caught my eye.
My colleague Jing Pan broke down the oil and gas driller’s financials in a recent article. During the second half of 2019, management paid out $16.2 million in total distributions. Amplify’s executives project that, during that same period, the business generated between $19.0 and $24.0 million in free cash flow.
That comes out to a payout ratio between 68% and 85%. Generally, I like to see companies pay out 90% or less of their earnings to investors as dividends. That leaves management with a little bit of financial wiggle room. So Amplify’s distribution sits well within my comfort zone.
To be clear, higher yields come with higher risk. Amplify’s profits swing with the ups and downs of the energy market. But with a distribution yield topping 13%, Mr. Market compensates investors well for the risks here.
Investors should also take a look at Oasis Midstream Partners LP (NASDAQ:OMP). This partnership owns pipelines that ship oil and gas from Point A to Point B.
While oil prices swing wildly from year to year, the total volume of crude that’s shipped through these routes remains remarkably consistent over time. As a result, the cash flows generated by these assets resemble bond coupons.
Oasis, specifically, looks poised to grow its distribution. The partnership has benefited from America’s shale energy boom, which has padded the company’s profits in recent years. Combined with a tidy upfront yield, unitholders could earn outsized total returns over the coming decade.
Of course, investors need to do their homework before pulling the trigger on any high-dividend stocks. That said, the stock screen above should generate plenty of ideas for further research.