Blue-chip dividend stocks are truly hard to find, particularly when investors start looking for names with big dividend yields that also provide relative stability (and Wall Street analysts think have significant upside potential). These are the sorts of companies investors looking to create meaningful passive income streams search for, but the list of stocks in this category that are worth investing in can be quite small.
The reason for this is that companies that provide dividend yields well in excess of the market tend to have higher risk profiles. Similar to how other fixed income securities trade (where yield and price are commonly inversely related), when a stock’s dividend yield soars above the 6% level, that’s typically a good sign that it’s a stock with a risk profile that may not be worth considering right now.
That said, there are a few stocks yielding above 6% I think make solid long-term investments. Here are three of the top such names on my watch list right now.
Alexandria Real Estate Equities (ARE)
In the world of specialized real estate investment trusts (REITs), Alexandria Real Estate Equities (NYSE:ARE | ARE Price Prediction) is a top pick of mine for investors seeking a dividend yield above 7%. Currently yielding 7.8%, Alexandria is a REIT I think investors may want to consider as a way to play the real estate sector in an unconventional way.
That’s because while most investors may immediately think of residential, office or commercial real estate when thinking about REITs, Alexandria is unique in this sector. The office REIT focuses on a sub-segment of this sector I think is worth considering. The company invests in life sciences and biotech campuses, buying and holding buildings for the long-term with solid anchor tenants including a range of major pharmaceutical and life sciences companies which typically take on long-term leases.
The company’s current yield is attractive relative to its peers and this sector as a whole. And while the company’s payout ratio may seem high, that’s a facet of the REIT space, and one long-term dividend investors ought to like. With strong funds from operations growth over time, Alexandria’s growth trajectory and 16 consecutive years of dividend increases indicates to me this is a company with strong management discipline and a capital return profile retail investors can get behind.
Altria Group (MO)
With a dividend yield that’s just a hair shy of 7% at the time of writing, Altria Group (NYSE:MO) seems like a solid fit for this list of high-yielding blue-chip dividend stocks worth buying. The cigarette maker has made a strong shift in recent years toward becoming more of a smokeless and tobacco-free company, something I’ve thought could lead to a significant uptick in the company’s share price (and a lower yield).
Fortunately for dividend investors seeking high-yield names in the consumer staples sector, Altria’s 6.8% dividend yield has remained very robust. I think that’s partly due to relatively low investor demand for this company (given its underlying business model). But with a forward price-earnings ratio of around 11-times, this is a stock that’s a screaming buy from a valuation standpoint, and one that’s not a slouch in terms of its growth prospects long-term.
With a dividend growth track record of more than 50 years, Altria is a dividend king that will more likely than not continue to raise its distribution over time. Thus, with a payout ratio of around 80%, and a cash flow growth profile I see as robust over the long-term, this is a name I’d consider owning for the next couple decades personally.
Dow Inc. (DOW)
The final stock on this list I think dividend investors may want to consider right now is chemicals giant Dow Inc. (NYSE:DOW). I’ll have to admit, this is probably the riskiest play on this list, and is one that may be best-suited for investors who are more willing to handle near-term volatility. That’s because Dow’s current dividend yield is pushing toward double-digit territory, and that’s the sort of level that many investors may rightly think could imply a dividend cut at some point down the line.
The market is typically pretty decent at sniffing out companies that have what can be perceived to be unsustainable dividend yields. By selling such stocks, market participants are betting that this yield won’t be sustainable – if it was, most investors in their right minds would hop on a 10% yield, double one’s money in around 7 years (on average), and call it a day.
That said, I think the risks investors are implying with this stock may be overblown. Yes, Dow does hold a significant amount of net debt on its balance sheet (at around $18 billion, with only $1.5 billion of cash on hand), and there are growing concerns about this company’s ability to pay down debt and also maintain its dividend yield (or grow its distribution over time).
But with the potential to dial back share buybacks and instead focus on debt reduction, I do think there’s a path forward for long-term investors considering this name. As a speculative pick, this is a holding I think is best suited for more aggressive investors in this climate.
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