There are many ways to make money on Wall Street. But if there is one common theme among the best performing portfolios, it is that they often rely on it Dividend stocks.
In 2013, JP Morgan Asset Management released a report showing how dominant dividend stocks are compared to publicly traded companies that don’t pay dividends. Between 1972 and 2012, companies that initiated and increased their payouts averaged an annual profit of 9.5%. By comparison, ineligible stocks only posted a meager annualized return of 1.6% over the same period.
These results should come as no surprise. Because most dividend stocks are profitable and have proven operating models, they are the ideal place for long-term investors and income seekers to park their money.
The dilemma for income seekers is how to get the highest possible income with the least risk. However, There is a tendency for there to be a correlation between risk and return as soon as you get into the high-yield category (over 4%).
However, this is not the case for the following five high yield stocks. These proven companies should continue to benefit investors through price increases and returns. I believe they can double your initial investment by 2029 (or sooner).
Annaly Capital Management: 10.3% return
For income seekers who prefer the dividend to do most of the heavy lifting, the Mortgage Real Estate Investment Trust (REIT) Annaly Capital Management (NYSE: NLY) is a good bet to double your money by or before 2029. If you were to reinvest your payouts at that 10.3% return, Annaly’s dividend alone would Double your initial investment in seven years.
Mortgage REITs like Annaly seek to borrow money at lower short-term rates in order to buy mortgage-backed securities (MBS) with higher long-term returns. The aim is to maximize the difference between the average long-term MBS rate of return and the average interest rate on debt, known as the net interest margin. When the yield curve steepens during an economic recovery, net interest margins tend to widen. As the US economy regains its foothold, Annaly’s core business and earnings potential should improve.
Annaly is also helped by her ability to carefully rely on leverage to increase her earnings potential. Since the majority of the assets are securities of the agency – that is, those protected from default by the federal government – Annaly can borrow more money to grow her profits and fund her hefty dividend.
On a final note, Annaly has averaged a dividend yield of around 10% over the past two decades and has paid out over $ 20 billion in dividends since it was founded nearly a quarter of a century ago.
AbbVie: 4.4% return
At the other end of the high-yield dividend spectrum, at least on this list, it says pharmaceutical warehouse AbbVie (NYSE: ABBV). Given its 4.4% return, modest growth potential, and insane value proposition, AbbVie has all the tools needed to double investor money by 2029, if not sooner.
There is no question that the anti-inflammatory drug Humira will play a huge role in AbbVie’s long-term success. Before the mammoth sales related to coronavirus vaccines, Humira was the best-selling drug in the world. It has 10 approved indications in the US, 14 internationally, and has annual sales of nearly $ 20 billion in 2021, based on the $ 9.94 billion registered in the first six months of the year. Despite the potential for biosimilar competition in the US in the coming years, Humiras offers multiple approved indications and generally strong pricing power for AbbVie to generate significant cash flow from its top drug.
Beyond Humira, AbbVie has turned to acquisitions to diversify its source of income and continue to support its cash flow. In May 2020, the company closed a cash-and-stock deal to purchase Allergan. Aside from being instantly profitable, the transaction provides additional cash flow for research and development and gives AbbVie another blockbuster presence with Botox, which has cosmetic and therapeutic uses.
With less than nine times future earnings, AbbVie sees each part as a bargain for value investors and income seekers.
Altria Group: 7.1% return
I’ll be the first to admit that Tobacco stocks aren’t the sexy growth story they once were. But when the going gets tough, few industries have delivered more consistent performance to investors in the long run. By 2029, Altria Group (NYSE: MO), the company behind the premium US cigarette brand Marlboro, is a great choice for doubling investor money.
To put it bluntly, tobacco volume metrics have been going in the wrong direction for decades. As people became better educated about the negative health effects of tobacco use, fewer adults have chosen to light themselves. Interestingly, however, that didn’t hurt Altria as much as you think. The company has exceptionally strong pricing power, thanks in part to the addictive nature of nicotine, and has been able to raise prices to offset the decline in the volume of cigarettes.
Besides, Altria is invest aggressively in your future. It introduces the IQOS heated tobacco system (licensed in the US by Philip Morris International) into a number of emerging US markets and owns 45% of Canadian marijuana stocks Cronos group. Expect Altria to work hand in hand with Cronos to develop vape products and develop a marketing strategy.
With Altria offering investors a 7.1% dividend yield, it would only take a small increase in price for Altria to double your money by or before 2029.
IBM: 4.7% return
For the past decade IBM (NYSE: IBM) has roughly the same attraction as drying paint. The technician waited too long to shift his focus to cloud computing. As a result, sales for its legacy businesses have reversed. But after a decade of transformation a new IBM is flourishing which in turn can deliver for its shareholders.
At the end of the June quarter, IBM had cloud revenue of $ 7 billion, up 13% over the same period last year. More importantly, cloud sales accounted for 37% of total sales. Because cloud margins are significantly higher than the margins associated with IBM’s legacy operations, they are key to increasing the company’s operating cash flow. As a reminder, IBM loves to use its cash flow to pay its hefty 4.7% dividend, buy back its shares, and make purchases (mostly in the cloud space).
It’s also worth noting that IBM decided to focus on Hybrid cloud solutions – those that combine public and private clouds – that allow data to be shared between the two platforms. The hybrid cloud is perfect for big data projects in which IBM has always excelled. It’s also great for a hybrid work environment where remote workers have been a common theme since the pandemic began.
IBM is unlikely to return to its former glory. However, doubling your initial investment by 2029 versus reinvesting dividends and rising prices seems very doable.
Partner for corporate products: 8.3% return
One final high yield dividend stock that can double your money by 2029 or sooner thanks to its superior payout and share price is a master limited partnership Partner for corporate products (NYSE: EPD).
After last year, I can imagine the idea of owning Oil stocks has a low priority for some investors. This is because a historic decline in crude oil demand has ruined the operating performance and balance sheets of most drilling companies.
However, Enterprise Products Partners was hardly concerned as it is a midstream operator. In other words, it controls more than 50,000 miles of pipeline and 14 billion cubic feet of natural gas storage space in addition to more than a dozen processing facilities.
The company’s take-or-pay contracts are designed in such a way that the majority of sales and cash flow are highly transparent. This allows the company to spend capital on infrastructure projects without worrying about hurting its earnings potential or hurting its lucrative dividend, which stood at 8.3% last weekend.
Another notable feature of Enterprise Products Partners is the dividend. The enterprise has increased its annual base payout for 22 consecutive years, and its distribution coverage ratio didn’t fall below 1.6 during the pandemic (anything below 1 would mean an unsustainable payout). With incredible cash flow visibility and a willingness to spend on new infrastructure projects, Enterprise Products Partners is a great choice for doubling investor money by 2029.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.