5 “Cash Cow” Dividend Stocks Yielding Up to 18%
June 6, 2018
High-Yield Dividend Stocks
Investors have to work harder to find a decent yield nowadays, but you already know that.
Analysts have a lot of explanations for today’s low interest rates. But if I had to pick one factor above all, I would lay most of the blame on slow economic growth worldwide.
And there’s good reason to think that interest rates will stay low for a long time. The pool of savings now far exceeds the number of available investment opportunities. As a result, traders have bid up the price of assets to new heights.
So, if yields stay low, where can investors find income?
You could do worse than to double down on “cash cow” dividend stocks. These firms represent mature businesses with limited growth prospects, so owners can milk their operations for ongoing income (hence the name).
Think of industries like pipelines, gas stations, and cleaning supplies. No, stocks like these don’t get mentioned often in the financial press, but if you’re willing to do some research, you can often spot yields of 15%, 17%, and even 25%.
To help get you started, I’ve prepared a list of my favorite cash cow businesses. To be clear, the table below doesn’t constitute a list of “buy” recommendations. It does, however, represent a great place to begin further research.
|
Company |
Market Cap |
Yield |
|
Magellan Midstream Partners, L.P. |
$16.1B |
5.4% |
|
TC Pipelines, LP |
$1.8B |
10.4% |
|
AGNC Investment Corp |
$8.0B |
11.4% |
|
Government Properties Income Trust |
$1.4B |
12.0% |
|
BP Prudhoe Bay Royalty Trust |
$617.4M |
13.9% |
(Source: Yahoo! Finance, last accessed June 4, 2018.)
Let’s say a few words about these stocks.
TC Pipelines, LP (NYSE:TCP) and Magellan Midstream Partners, L.P. (NYSE:MMP) both churn out some of the biggest yields around. Traders also look down their noses at these types of stocks because everyone wants to make a fast buck in cryptocurrencies or hot tech stocks. Oil and gas don’t have the same “cool” factor. Low energy prices will limit future growth. And what growth pipelines do squeeze out could get coldcocked by new tax rules in Washington.
Then again, no one earning a six-percent-plus yield deserves to receive much earnings growth. With pipeline stocks, you get a big upfront yield and not much else. Shareholders need to accept that their distributions may not grow at all going forward. But when you earn such a high yield, investors will likely wallop the broader market as the years go by. It’s a wonderful thing to watch.
Next, you have a simple story with AGNC Investment Corp (NYSE:AGNC). It’s a well-run real estate firm that invests in mostly residential mortgages; families make their house payments, you get a dividend. And to stretch those returns further, management employs a modest amount of leverage. Lastly, given that these loans come with the backing of several U.S. government-sponsored agencies, investors have little to worry about in the way of defaults.
Government Properties Income Trust (NASDAQ:GOV) owns hundreds of office buildings across the country that are rented out to “Uncle Sam.” The Internal Revenue Service (IRS) represents GOV’s biggest tenant by square footage, followed by Citizenship and Immigration Services. Needless to say, these tenants pay their rent and certainly aren’t going out of “business” anytime soon. For shareholders, this has created a tidy stream of income.
BP Prudhoe Bay Royalty Trust’s (NYSE:BPT) story is similar to TC Pipelines and Magellan. The royalty trust owns a collection of oil wells on the Alaskan North Slope. But rather than plow profits back into new drilling operations, management is content to drain existing operations and pay out all of their profits to shareholders. As a result, shares pay out a jaw-dropping 18% yield.
Of course, payments vary with energy prices. These oil wells (and by extension, the distribution) will eventually run dry. But for those who understand the risks upfront, royalty trusts like BPT can make for lucrative investments.
