When seeking companies whose stock provides a dividend yield of 6% or more, you know the list will be somewhat short and the reasons for the high yield will either be very good or very bad, so it makes sense to take a good hard look first.
It doesn’t make much sense to purchase a stock for a high dividend only to watch that dividend be cut, or even worse, see its stock price plummet and have the dividend cut. That’s a real risk with any stock that has a high dividend, simply because the yield is a ratio of how much a company pays out in dividends each year relative to its current stock price.
One Liberty Properties (NYSE: OLP), Westlake Chemical Partners (NYSE: WLKP), and AT&T (NYSE: T) all provide dividends with yields of at least 6%, yet are in solid positions with potential for growth this year. In the case of these companies, the yield is so high is because their stock price has dropped. But what I like about all three of these stocks is that their share prices are going back up.
1. One Liberty Properties is building something
There’s a cloud over many real estate investment trusts (REITs) because the pandemic has adversely affected individuals’ and companies’ ability to pay the rent, but one REIT sector that has consistently done well over the past year is industrial REITs. That’s One Liberty’s focus, with more than 55% of its properties being industrial net leases.
The company’s stock price is up more than 70% over the past 12 months and more than 12% just in 2021. It pays a quarterly dividend of $0.45 per share, generating a yield of 7.85%.
The company owns 125 properties over 31 states, with its biggest tenants being Haverty’s Furniture, FedEx, LA Fitness, and Northern Tool and Equipment. The company had 98.4% occupancy as of Dec. 31, 2020, after taking into account deferrals and rent abatements. Last year, its net income was $27.4 million, up from $18 million from 2019 totals. Its funds from operations (FFO) for 2020 were $33.8 million, down from $36.5 million in 2019. The company’s share-price-per-FFO ratio is a bargain at 2.53.
Its dividend appears safe, with an adjusted FFO payout ratio (trailing 12 months) of 62.11%, below the sector’s average of 74.63%.
Another thing I like about One Liberty is that its principals aren’t afraid to have some skin in the game, as the company boasts 22.1% insider ownership.
2. AT&T is ringing in a new year on a good note
It’s popular to bash AT&T stock these days, but the telecommunications giant keeps rewarding investors. The company’s shares are basically flat over the past 12 months but up more than 5% this year. That’s hardly outstanding, but that doesn’t take into account the company’s dividend, which is.
AT&T is a Dividend Aristocrat, and in late 2019, it raised its quarterly dividend to $0.52 a share, giving it a current yield of 6.88%. The late bump meant that the quarterly payout in 2020 was higher and it became the 36th consecutive year the company has raised its annual dividend. No dividend raise occurred in 2020, but as long as AT&T raises the quarterly rate again sometime before the end of 2021, the Dividend Aristocrat status will continue. AT&T CEO John Stankey has said the company is dedicated to its dividend, and in 2020, it was well funded with a 54.5% full-year dividend payout ratio.
The company’s 2020 revenue was a reported $171.8 billion, down 5.2% year over year, but the COVID-19 pandemic can be blamed for much of the slowdown. The lack of travel during the pandemic cut down on roaming charges, and WarnerMedia shut down TV and film production during much of the pandemic.
Still, I like the direction the company is going. Its investment in 5G networks seems to be helping its core wireless business, which saw revenue rise 7.6% in the fourth quarter. The wireless segment reported $72.5 billion in annual revenue, up 2.1% compared to 2019. The company reported it had 182.5 million wireless subscribers in 2020, compared to 165.8 million in 2019.
AT&T’s partial divestiture of DirecTV will also create less drag on its bottom line as well. Its bold move to beef up HBO Max’s content by releasing Warner Media’s movies there simultaneously with their release in theaters in 2021 may also pay off, as shown by the ratings and box office revenue for recently released Godzilla Vs. Kong. The company’s forecast for 2021 predicts modest revenue growth of 1%, but with AT&T’s anticipated $26 billion free cash flow this year, the dividend is more than safe.
3. Westlake Chemical Partners is well protected
Shares in Westlake Chemical Partners are up more than 54% over the past 12 months and about 2% this year. The company has a quarterly dividend of $0.4714 per share, generating a current yield of 7.76%. The company, formed in 2014, has raised its quarterly dividend each year, though not yet in 2021.
With a price-to-earnings ratio of 12.93, the company represents a bargain. Last year was a difficult one, though, with two hurricanes hitting its ethylene production facilities in Lake Charles, Louisiana. The company’s revenue was $888.2 million, down from $937.6 million in 2019.
Westlake Chemical Partners is a limited partnership formed by Westlake Chemical Corp. to operate, acquire, and develop ethylene production facilities, and Westlake Chemical retains 22% of Westlake Chemical Partners.
Because of its business arrangement with Westlake Chemical, which buys 95% of the company’s ethylene, Westlake Chemical Partners reported net income of $341.9 million for 2020, up 2% over 2019. Westlake Chemical was obligated to pay Westlake Chemical Partners’ costs associated with ethylene that it would have produced had it not been for the hurricanes.
Looking ahead, the company’s dividend is protected by its predictable cash flows.
Making the best choice of the three
All three companies’ dividends are well covered and should continue, so the biggest question to me is: Which stock is likely to climb in price the most this year?
One Liberty Properties seems to have the most room to grow in 2021 as the economy returns to something closer to normalcy. I also see Westlake Chemical Partners boosting profits if ethylene prices increase (for March, they were down slightly month over month). AT&T’s price may not climb as much as One Liberty Properties this year, but AT&T’s investments in 5G are going to make it the best long-term pick of the three.
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