When it comes to dividend investing there are many traditional stock sectors which have been the go-to stocks for bigger dividend distributions. Utilities of course are one of the usual areas, in that many older utilities stocks used to be called “widows and orphans” stocks for their reliability in generating income.
And indeed, utilities continue to deliver income and safer gains over the longer haul. The S&P Utilities Index has an average yield of 3.2% — which is well above the S&P 500’s average yield of 1.8%. And over the past ten years, the Utilities Index shows a price gain of 105.7% but with dividends, the return jumps by nearly double to 202.3%.
Then there is the more modern-day source for widows and orphans: real estate investment trusts (REITs). Thanks to the Cigar Excise Tax Extension Act of 1960, companies owning real estate and related assets are able to be formed as pass-through securities largely exempt from income taxes. And thanks to the Tax Cuts and Jobs Act of 2017, REIT dividends also come with a 20% deduction for individual investors when they file their taxes with the tax treatment found in Box 5 of their 1099-DIV forms.
The REIT market, as measured by the Bloomberg US REITs Index, has an average yield of 3.8.%. That’s much higher than the general S&P 500. And like for utilities, the past decade has shown a price gain for the index of 116.3% while with dividends, the return again jumps to 223.9%.
But there are many sectors and individual stocks that you will be surprised to learn offer ample dividend yields well beyond the usual sources for stock income investors.
The following are some of my recommendations which are inside the model portfolios of my Profitable Investing.
Dividend Stocks to Buy: Covanta (CVA)
Dividend Yield: 6.8%
The world is increasingly surrounded by trash and waste. Think of the Disney (NYSE:DIS) film WALL-E, in which the world’s population has fled in a cruise ship-like space craft as trash has piled up so high that there is no room for anything including crops and food production. While we are not nearly there, trash continues to be a bigger problem.
Adding to the problem is that recycling is increasingly not economically viable. Sorting centers have been shut down or severely limited. This has led to many hundreds of municipalities throughout the U.S. no longer conducting recycling programs.
Enter the problem solver: Covanta (NYSE:CVA). The company operates collection and processing facilities for trash throughout the U.S. Covanta cleanly incinerates the trash, providing clean energy which is then sold on the wholesale and contracted municipal markets for revenue.
So, Covanta earns cash from collecting trash and then earns more from selling clean energy.
It yields 6.8% and has been raising the dividend distribution by 3.1% on average for the trailing five years.
Revenues are rising with the trailing year seeing gains of 6.6%. And while operating margins are narrow, they are still steady to feed the dividend income. And with newer and pending additional investments from investment companies, expansion is set to continue for the cash from trash company.
FMC Corporation (FMC)
Dividend Yield: 1.8%
Food is another critical problem for the world. Continuing population expansion is stressing agriculture to produce more and more crops, as well as livestock, for a hungry world.
Now, you might buy a farm and try your hand at growing crops or raising cows and pigs — but I have a better idea which comes with nice dividends. It starts with getting better-quality crops from grains to produce and even grapes for wine. FMC Corporation (NYSE:FMC) is a long-standing company with a history of transforming itself every so many decades. It’s now fully focused on enhancing agricultural production.
FMC makes and delivers pesticides and herbicides and works with local producers around the globe, including tough markets such as China and India. And it has history with one of the first patents for chemical application hardware many decades ago.
The dividend yield is running at a lower rate of 1.8%. But it has huge revenue gains over the past year by 69.3%. And its operating margins are fat at 17.3%, which in turn deliver a return on equity of 18%. Lots of cash and little debt makes for a dependable company.
FMC has delivered a total return including dividends of 112.7% over the past three years. Its recent focus on agricultural chemicals helps make it a good and dependable performer for both income and gains.
Dividend Yield: 0.6%
Then for livestock there’s Zoetis (NYSE:ZTS). This company makes animal healthcare products and vital vaccines. It is mission critical for farm livestock production as well as highly beneficial for pets including my dachshund, Blue. In addition, China and many other markets are experiencing African swine fever, which is decimating pork production and pig populations. Zoetis is an expert in solving this, including with its patented vaccines.
Revenues are up 9.8% over the past year and operating margins are fat at 31.1%. And while the dividend yield is a bit sparse at 0.6% as the company has been retaining earnings for more product development, the distributions are up 30.2% over the past year.
Zoetis has provided a total return including dividends of 217.98% over the past five years — well above the S&P 500. And it makes for a great play on cash from food and farming markets.
Hercules Capital (HTGC)
Dividend Yield: 9.5%
Technology is usually assumed to be for growth and not income. And this is easily seen in the average yield for tech stocks, as measured by the S&P Information Technology Index. The average is a mere 1.2% — much lower than for the S&P 500.
But I have a tech stock that significantly bucks this assumption. Hercules Capital (NYSE:HTGC) is based in the tech mecca of the U.S. in Palo Alto, California. Structured under the Investment Companies Act of 1940 and the Small Business Investment Incentives Act of 1980, the company largely avoids corporate income taxes and in turn pays out ample dividends.
It focuses on finding and financing tech companies in various stages of their development. It loans money as well as taking equity participation and works to guide companies through their development and exit strategies.
Revenues continue to rise year in and year out with the past year seeing gains of 8.8%. Internal financial returns are significantly better than traditional financials and banks. And while the stock has generated a total return of 233.2% over the past ten years, it is still a value. HTGC stock is only valued at a price-to-book ratio of 1.4.
Now I come to the great news. The dividend yields 9.5% on an annual basis, as the company pays both regular dividends as well as ongoing special distributions which continue to rise over the past years.
Tech can be a surprising source for dividend income with Hercules Capital.
American Campus Communities (ACC)
Dividend Yield: 4.1%
When it comes to college, most think about spending money to educate their children so that they can be empowered to earn salaries later in life. But college isn’t just about investing for the future — it can also be a source for surprising dividends right now.
American Campus Communities (NYSE:ACC) develops, owns and operates student housing for major universities around the U.S. Despite housing shortages at many major schools, universities are more eager to fund academic and athletic facilities. But ACC is there to serve the gaps.
Revenues are rising from its impressive collection of properties gaining 10.6% over the past year. And its return from actual property operations (excluding other profits from gains and appreciation), as measured by the return on funds from operations (FFO), is ample at 11%.
It is structured as a REIT but with a particular focus on colleges, which is unique as it is the only listed REIT in this space which is increasingly dominated by private equity and other investment funds.
Its dividend yields 4.1% and the stock has generated a total return of 141.9% including dividends for an average annual equivalent return of 9.2%.
Colleges are great at education, but thanks to American Campus Communities, they are also a surprising source for dividend income.
MFA Financial (MFA)
Dividend Yield: 10.5%
Home is of course where the heart and hearth are, but it also where ample dividends can be a surprise for investors in the know.
And no, I’m not writing about renting out homes or home equity loans. But instead, I have a stock from a company which generates lots of cash while paying a dividend yielding in the double digits.
MFA Financial (NYSE:MFA) yields 10.5% — and that isn’t a misprint. And it isn’t a flighty, higher-risk stock either. It has generated a total return including dividends of 241.8% over the past decade.
The company owns and manages a portfolio of mortgage securities on homes and other properties throughout the U.S. And it knows how to deal with risks and opportunities in that it was paying dividends and performing well even during the very dark times for mortgages in 2007-2008.
Legally, it is structured under REIT laws which makes it tax advantaged for corporate income taxes, with tax deductions for individual investors as well. Revenues are rising, with the past year gaining 5.1%. Plus, its internal financial performance continues to deliver to fund the dividends.
And it is a bargain stock which is priced at $7.64 and is only valued at 1 times book. It is a great surprise for big dividends with proven performance.
Dividend Yield: 1%
Gold is on the move. The current spot price for gold is sitting at $1,525.52 and is up by 20% since May of last year. Gold is gaining from some specific factors including the recent softness in the U.S. dollar as well as falling shorter-term U.S. dollar interest rates. Gold benefits from a lower dollar in that as it is priced in dollars, it is worth more as the dollar dips. And gold benefits from lower interest rates because it costs less in opportunity cost to hold it.
But gold has a catch. It doesn’t pay a dime in interest. And it costs to store it. Even the SPDR Gold Shares (NYSEARCA:GLD) exchange-traded fund has a cost to own it. Its expense ratio runs at 0.4%, or $40 on a $10,000 investment, and comes with no dividend. So, if gold doesn’t move up or drops back, it has locked in losses.
But I have an alternative for gold which does pay a dividend. Franco-Nevada (NYSE:FNV) is a Canadian-based company which also easily trades in the U.S. markets. It doesn’t mine gold, but merely obtains royalties on gold production quarter by quarter and year by year. This means no capital for mine development and operation, and less risk that capital will be lost in bad mines.
Gold goes up in price and it gets more cash. And if gold goes down, it still gets paid cash. And it pays a dividend all along the way.
The total return for the stock since May 2019 is 47.8%, which is more than twice the price movement in gold.
Now the dividend doesn’t yield much at 0.97% — but that’s way better than zero. And the stock return is proof that it makes a surprising (and better) investment over gold itself or a gold ETF.
Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine … one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.