Finding ultra-high yield dividend stocks isn’t for the faint of heart, as it often requires dipping your toes in more turbulent waters. But if you’re careful about the companies you select (and don’t just buy the highest-yielding stocks), you can find some real diamonds in the rough. Right now, it appears that Wall Street is underestimating the economy’s potential W. P. Carey(NYSE:WPC), Bank of Nova Scotia(NYSE:BNS)And Innovative industrial properties(NYSE: IIPR). This is why you might want to buy these high-yield products and hold on to them for a decade or more.
In one very important way, WP Carey started 2024 on the wrong foot. The Real Estate Investment Trust (REIT) cut its dividend after 24 consecutive annual increases. That’s bad news, but there’s an odd wrinkle. The dividend began rising again the following quarter – and every quarter after that, essentially resuming the quarterly pace of increase that existed before the cut. That cut was really a reset.
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At the end of 2023, WP Carey announced that it will leave the office sector, which at the time accounted for around 16% of rental prices. The logic for this move is sound as the office sector faces significant headwinds. Rather than deal with the problems of a struggling sector for years, management chose to walk away from everything at once, even though it necessitated a dividend reset. Notably, this move has given WP Carey money that it can invest in future growth. So in many ways this decision put the REIT in a better long-term position, which is what management was aiming for.
However, Wall Street has adopted a show-me attitude and the REIT’s dividend yield stands at a lofty 6.2%. It will take some time for WP Carey to invest that money and prove that this was a good strategic choice. If you buy now, you will get a huge return and benefit from an expected higher growth rate in the future.
Speaking of big strategic moves, Bank of Nova Scotia, better known as Scotiabank, has also decided to embark on what will likely be a multi-year pivot. At one point the Canadian bank wanted to expand into Latin America. However, due to economic volatility in the region, the bank lagged behind its peers. So now Scotiabank is trying to exit the less desirable Latin American markets and refocus on more desirable ones. It is also trying to increase its exposure to the US market, which it had largely skipped in its previous approach.
There’s no way Scotiabank will do all this in a year or two. That’s true, even though it recently bought about 15% of the stock KeyCorp(NYSE: KEY)thus significantly increasing exposure to the US. Wall Street is understandably cautious given the execution risk associated with this change in price. But for dividend investors looking for reliable high-yield stocks, Scotiabank is probably worth the risk. The bank has paid a dividend every year since it started paying dividends in 1833 (that’s not a typo!).
If you don’t mind getting a huge 5.6% yield from a reliable dividend payer, Bank of Nova Scotia might be a good fit for your portfolio as Wall Street worries about the shift to a slightly different business approach.
Innovative Industrial Properties offers investors a lofty dividend yield of 7.4%. The dividend increases every year for seven years (note that the REIT only went public in 2016). And the unique market that Innovative Industrial serves is expected to grow 50% over 2023 levels by 2028!
There must be something missing here. That would be the not-so-insignificant fact that Innovative Industrial Properties owns marijuana-related assets, with a heavy focus on grow houses. The continued trend toward legalization is a good thing, but it is not a smooth or even process. Some investors may not want to get involved, given the regulatory and political twists. But if you can deal with a little bit of uncertainty, the longer-term trend certainly points to marijuana being a growth sector – and Innovative Industrial being a playful (and high-return) way to capitalize on it.
Clearly, WP Carey, Scotiabank and Innovative Industrial all carry additional risks in addition to their high returns. But the discerning dividend investor will likely conclude that the additional risk is sufficiently compensated through the high dividends these companies offer. Of course, it will probably take years for each of these stories to play out. But that just means you can collect outsized income streams (perhaps for decades to come) if you hold the stock today while Wall Street is still trying to figure out these companies.
Consider the following before buying shares in WP Carey:
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Reuben Gregg Brewer holds positions at Bank Of Nova Scotia and WP Carey. The Motley Fool recommends Bank Of Nova Scotia and Innovative Industrial 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
