These 4 High-Yield Dividend Stocks Have Something Yield Traps Don’t: Cash to Spare

A big yield only matters if the business can keep paying it. Plenty of high payers look generous because the share price fell or because the company pays out more cash than it brings in, the kind of warning signs we cataloged in a free report on dividend traps. The four names below meet a stricter standard. Each one funds its payout from cash flow with room left over, and each raised its payout within the past year. Enterprise Products Partners (NYSE:EPD | EPD Price Prediction) shows what that margin can look like: last quarter’s record distributable cash flow covered its distribution 1.9x.

Enterprise Products Partners: Record Cash Flow Behind a Rising Distribution

Enterprise yields 6.11%, which puts it in ultra-high-yield territory. That yield comes from a rising payout. At $35.84, the units are up 16.95% this year. Because Enterprise is a master limited partnership, it pays distributions rather than dividends, and unitholders receive a K-1 at tax time.

Dividend safety: Operational distributable cash flow rose to an all-time high of $2.3 billion in the second quarter, up 21% from a year earlier. Enterprise paid $1.2 billion to unitholders and kept $1.1 billion for growth projects and buybacks. Over the 12 months ending June 30, distributions and unit repurchases together came to 56% of adjusted cash flow from operations. Total debt principal was about $33.5 billion. Roughly 97% of it carries fixed rates, at a weighted average cost of 4.7%, and leverage remains at the partnership’s 3.0 net target.

Track record: The quarterly distribution has risen from $0.45 in 2021 to $0.56 today, with increases every year in between. The latest rate is 2.8% higher than a year ago.

Bull case: Enterprise has $6.5 billion of organic growth projects under construction, including new Permian processing plants and a new fractionator. Its LPG export capacity is about 90% contracted. Management still expects discretionary free cash flow to approach the $1 billion area this year even with higher capital spending. The chief executive summed it up: “Combined with a strong balance sheet, substantial retained cash flow, and a disciplined capital program, we’re well positioned for growth.”

Risk: The record quarter included about $200 million of extra benefit from a surge in global demand during April and May, and management said those spreads have since largely returned to normal. That makes 1.9x coverage look like a high point for the partnership. The units have fallen 7.87% over the past month.

Realty Income: 676 Straight Monthly Dividends Backed by Rising AFFO

Realty Income (NYSE:O) yields 5.97%, a high yield paid out every month. At $55.21, the stock is up 1.88% this year, so the yield reflects a growing payout.

Dividend safety: Second-quarter adjusted funds from operations (AFFO, the cash earnings measure REITs use) came to $1.09 per share. Dividends paid in the quarter were $0.8115 per share. Management raised full-year AFFO guidance to $4.44 to $4.45 per share, well above the $3.252 annualized dividend. The free cash flow yield is 7.43%, and Fitch rates the company ‘A’. Occupancy was 98.8%, and re-leased properties brought in 102.7% of their prior rent.

Track record: Realty Income’s most recent declaration was its 676th consecutive monthly dividend. It has also declared its 136th monthly dividend increase and reached its 115th consecutive quarterly increase. The current monthly payment is $0.2715.

Bull case: Realty Income raised its investment volume guidance to $10.0 billion at a 7.3% initial cash yield. Its private capital platform, which manages $3.5 billion for outside investors, adds a fee stream on top of rent. Management said the guidance raise reflects “approximately 4% growth rate at the midpoint.”

Risk: Leverage has been rose. Net debt to annualized pro forma adjusted EBITDAre increased to 5.4x from 5.2x, and interest coverage stands at 1.42. That leaves the company sensitive to borrowing costs as it funds new acquisitions.

Altria Group: A Yield That Held Up Through a 31% Rally

Altria (NYSE:MO) yields 5.92% even though the stock has rose 31.64% this year to $72.39. The yield stayed high because the payout kept rising: the quarterly dividend just went up to $1.11 from $1.06.

Dividend safety: Trailing diluted EPS of $4.75 covers the $4.24 in dividends per share over the past year. Management narrowed full-year adjusted EPS guidance to $5.61 to $5.72 and raised the low end. In the first half, Altria returned nearly $3.9 billion through dividends and buybacks while cash grew to $2.37 billion, up 83.9% from a year earlier. Shareholders’ equity is negative at -$2.62 billion. That reflects years of share buybacks.

Track record: Altria’s dividend history goes back to 1999. The data shows a raise every year since at least 2019, when the quarterly payout reached $0.84.

Bull case: Pricing power keeps the cash coming. Smokeable segment revenue rose 2.0% to $4.66 billion, and on! PLUS nicotine pouches are sold in 120,000 stores. The stock trades at about 12 times forward earnings, based on a forward P/E of 12, and $665 million remains on the buyback authorization. The chief executive said Altria “returned nearly $3.9 billion to shareholders through dividends and share repurchases combined.”

Risk: Cigarette volumes are shrinking. Industry volume is falling about 5%, adjusted for trade inventory, and Marlboro’s retail share slipped 1.5 points to 39.5%. Price increases have to keep making up for those lost sales.

VICI Properties: An Ultra-High Yield Where AFFO Still Covers the Payout

VICI Properties (NYSE:VICI) yields 7.82%, the highest in this group. A falling stock price accounts for some of that yield. Shares are down 14.34% this year to $22.87, close to the $22.43 52-week low. Cash flow still supports the dividend.

Dividend safety: Second-quarter AFFO came to $0.62 per share, against a $0.45 quarterly dividend. Full-year AFFO guidance was raised to $2.45 to $2.47 per share. GAAP EPS of $0.48 missed expectations because of a $271.1 million non-cash credit-loss charge. That is an accounting entry that does not reduce cash available for dividends. Net debt is about 4.9 times adjusted EBITDA, below the company’s 5 to 5.5 times target range. Liquidity is about $2.5 billion, and Fitch rates the company ‘A’.

Track record: since VICI’s first listed payment of $0.16 in 2018, the dividend has gone up every year. The latest increase took it to $0.46.

Bull case: Occupancy is 100%, and the weighted average lease term is 39.6 years. Rents step up through annual increases of about 2.0%, plus CPI-linked increases. VICI now has 16 tenants. The stock trades at about 8 times forward earnings (forward P/E of 8) and a price-to-book of 0.895. The company’s president described its growth discipline this way: “We aim to make VICI bigger only when it makes VICI better.”

Risk: Rent is concentrated in two tenants. Caesars accounts for 38% of rent and MGM for 32%, so the dividend depends heavily on how those two operators perform.

Four Payouts Backed by Cash Flow

The widest coverage margin belongs to Enterprise, Realty Income has the longest streak, Altria kept its yield high through a fairly strong rally, and VICI offers the biggest yield with AFFO well above the dividend. All four raised their payouts within the past year, and each paid for those raises from cash flow. For investors living off the checks, that cash coverage is what separates a reliable yield from a risky one.

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