It can be hard to find good dividend yield stocks when the broader market is hovering near all-time highs, and the S&P 500's yield is a scant 1.2%. But don't give up -- just look harder.
If you do, you'll find gems like Bank of Nova Scotia(NYSE: BNS), with a yield of 6.2%; W.P. Carey(NYSE: WPC), which yields 5.8%; and EPR Properties(NYSE: EPR), with a huge 7.2% dividend yield. Here's a quick look at each of these attractive high-yielders.
1. Bank of Nova Scotia just upped its game
Bank of Nova Scotia, usually just called Scotiabank, took an unusual growth approach, focusing on expanding in South America at a time when its Canadian banking peers were expanding in the United States. That didn't work out as well as hoped, with Scotiabank falling behind competitors on key metrics (like earnings growth) largely because of its exposure to the emerging economies of South America.
Its Canadian operation remains large and fairly well positioned. Still, investors aren't pleased, and the stock is deeply depressed, offering a well-above-average yield of 6.2%. For reference, the average bank yields around 2.5%.
Bank of Nova Scotia isn't ignoring the problem. It has laid out a plan to exit less desirable markets (Colombia) while focusing on more desirable ones (Mexico). It is also going to expand its position in the United States, with a goal of creating a North American banking giant (with a business spanning from Canada to Mexico).
And it is already executing on that plan, recently announcing a deal to buy nearly 15% of KeyCorp. The investment is expected to be accretive to earnings very quickly, and it opens up interesting possibilities for the future, though there is no guarantee that a merger is in the cards.
To be fair, this is still a bit of a turnaround story, but if you think in decades, Scotiabank is worth a closer look for dividend investors. Notably, the bank has paid a dividend every year for over 150 years!
2. W.P. Carey hit the reset button, and it's already back to dividend growth
To get the bad news out of the way right up front, W.P. Carey was on the verge of hitting 25 years with its dividend increase streak and it... cut its dividend. But here's the interesting thing: The dividend started to be increased again the very next quarter.
So what's really going on with this real estate investment trust (REIT) that has an attractive 5.8% yield? Don't think of it as a dividend cut; think of it as a business reset.
When it comes to REITs, W.P. Carey is one of the most diversified companies you'll find, with assets across warehouse, industrial, retail, and a large "other" category. It also has properties in Europe, adding in geographic diversification, too.
What's now missing is the office exposure that it has reduced to nearly zero. The dividend cut came as W.P. Carey decided it had to move quicker on the office reduction front because of the headwinds that property niche faced. In roughly a year, office exposure fell from 16% to, well, almost zero (the final office sale should happen by the end of 2024). The dividend cut reflects the swift office exit.
Other than that, nothing material has changed about the way W.P. Carey operates. If you have dismissed this high-yield REIT because of the dividend cut, you might want to give it a second chance.
3. EPR Properties is on solid ground again
So far, all of these high-yield financial stocks have some warts. But EPR Properties, a REIT that is focused on owning experiential assets, probably has the biggest ones on it.
From a long-term perspective, this is an attractive niche. But in 2020, when the coronavirus pandemic was raging, it was a terrible focus. EPR Properties ended up cutting its dividend to ensure that it survived the pressures its tenants were facing. The world has since learned to live with COVID, and EPR Properties is back on solid ground.
Notably, EPR's dividend has started growing again. And perhaps more important, the second-quarter adjusted funds from operations (FFO) payout ratio was a very strong 70% or so. Also interesting here is the fact that the company's rental coverage is now higher than it was just before the pandemic in 2019.
There are still some lingering issues to deal with, including reducing the REIT's exposure to movie theaters (a too-high 37% of rents). But EPR is really operating from a position of strength at this point, a fact for which it seems Wall Street isn't ready to give it credit.
There are always trade-offs
Perhaps you've noticed the theme here. Scotiabank, W.P. Carey, and EPR Properties have high yields and businesses with a few warts. Investing is about balancing risk and reward, and when it comes to high yields, you often have to be willing to accept some warts.
The key thing here, however, is that each of these high-yield stocks is financially strong and has a good business. Yes, they are working through near-term headwinds, but it seems likely they'll succeed in the effort while continuing to reward income investors very well.
Should you invest $1,000 in W.P. Carey right now?
Before you buy stock in W.P. Carey, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and W.P. Carey wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $630,099!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
Reuben Gregg Brewer has positions in Bank Of Nova Scotia and W.P. Carey. The Motley Fool recommends Bank Of Nova Scotia and EPR Properties. The Motley Fool has a disclosure policy.