Dividend stocks with higher yields tend to be higher-risk investments. However, they can also offer higher rewards. If they can navigate their problems, they can provide investors with a terribly lucrative long-term income stream.
Crown Castle (NYSE: CCI), EPR properties (NYSE: EPR)And W. P. Carey (NYSE:WPC) currently stand out for their attractive dividend yields (currently all over 6%, which is significantly higher than the S&P500s 1.2% return). While the trio of real estate investment funds (REITs) have recently faced headwinds that have affected their dividends, they have moved past these issues. Therefore, they seem ready to generate a lot dividend income for their investors over the next ten years.
Crown Castle’s dividend currently yields 6.3%. The infrastructure REIT targeting data infrastructure, such as cell towers, has hit a speed bump in recent years. Higher interest rates and tenant problems have weighed on growth. As a result, the company expects to obtain its adjusted funds from operations (FFO) will fall by about 8% this year.
These issues have forced Crown Castle to make some changes. The company has shifted its focus to higher-return capital projects, causing it to scale back its growth spending plans. It has also launched a strategic review of its fiber business. These moves should increase cash flow and returns, putting the company in a better position to self-finance organic growth opportunities.
As CEO Steven Moskowitz stated in the third quarter earnings release:
Looking ahead, we remain optimistic about the long-term value creation opportunities across our tower, small cell and fiber solution offerings. Across all forms of digital connectivity, the US is generating record increases in data consumption annually, which is expected to drive continued demand for communications infrastructure.
That demand picture should put the REIT back on a growth trajectory in the future. In the meantime, Crown Castle has kept its dividend stable to retain additional cash to fund its growth. The country should be able to grow its dividend again (it had achieved compound annual dividend growth of 7% before hitting pause last year) once it emerges from the current headwinds.
EPR Properties currently pays a monthly dividend that yields 8%. The specialty REIT that focuses on experiential properties such as movie theaters and attractions has faced pandemic-related headwinds in recent years. Many of the tenants were unable to operate during that period, which had lasting consequences for their financial situation (one theater tenant ultimately filed for bankruptcy). As a result, the REIT had to temporarily suspend the dividend, and when it brought it back it was at a lower level.
On a more positive note, much of the company’s headwinds are in the rearview mirror. As a result, it generates stable cash flow to finance its dividend, with room to spare. It uses that excess free money to invest in new experience properties.
EPR is on track to invest between $225 and $275 million this year. These new investments increase rental income, allowing the REIT to steadily increase its reset payout. (It earned investors a 3.6% increase earlier this year.)
The company believes it can finance a similar rate of investment in the future. It has already lined up $150 million in experiential development and redevelopment projects that it expects to fund over the next two years. The company’s current investment rate is sufficient to grow FFO per share at approximately 3% to 4% per year, which should continue to support a similar dividend growth rate. In the meantime there is enough benefit from that plan if interest rates fall.
WP Carey’s dividend currently yields 6.3%. The diversified REIT had already delivered a quarter-century of annual dividend increases before last year. However, it made the strategic decision to exit the office sector by selling and splitting off these properties. It has also opted to reset its dividend to leave more money for future investments.
The REIT has already started rebuilding its portfolio and dividend. It is on track to invest approximately $1.5 billion in new properties this year industrial real estate and retail. The company focuses on operationally critical properties that are guaranteed for the long term net leases with clauses that increase rental prices by a fixed rate or a rate linked to inflation.
WP Carey has sufficient financial flexibility to continue acquiring properties in the future. That should allow the country to grow its rental income, which should support dividend growth. The REIT has already increased its payout a few times this year since the reset, a trend that will likely continue in the coming years.
High-yield dividend stocks can and do carry higher risk Certainly This has been the case in recent years at Crown Castle, EPR Properties and WP Carey. However, the trio of REITs are working through their problems, putting them in a solid position to pay dividends that are likely to rise over the next decade. That makes them ideal dividend stocks buy for those looking to secure a lucrative income stream in the coming years.
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Matt DiLallo holds positions at Crown Castle, EPR Properties and WP Carey. The Motley Fool holds and recommends positions in Crown Castle. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
3 Ultra-High Yield Dividend Stocks to Buy and Hold for Ten Years Originally published by The Motley Fool
