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Investors know adding high-yield dividend stocks to their portfolio is a great way to keep cash rolling in when the markets are volatile.
The problem is that the COVID-19 pandemic has hammered so many industries that finding companies with sustained dividends is difficult. A lot of formerly safe income sectors like banks, chemicals, REITs and oil and gas MLPs face the potential for dividend cuts if we get a second wave of the coronavirus.
But there is one sector of the economy that should hold up even if we see further economic damage. In fact, these companies are likely to see an increase in business if we see financial stress reappear anytime soon.
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I am talking about sin stocks.
In good times and in bad, some people will smoke, drink, gamble, and otherwise carry on no matter what is happening in the world. When stressed, they will do more of these things. While perhaps bad news for them, it is fantastic news for us as dividend-starved investors.
It might be a little controversial to profit off of some of these products. But your financial wellbeing and retirement goals are too important to avoid these fat dividend payers. After all, someone is banking these profits.
Here are the three best dividend-paying stocks for these uncertain times...
Dip Your Toes into Cannabis with This Dividend Stock
Altria Group Inc. (NYSE: MO) has been a great dividend stock for decades.
The company makes cigarettes, smokeless products, and wine in the United States. While best known for its Marlboro line of cigarettes, the company also owns several wineries, including Chateau Ste. Michelle and 14 Hands, Stag's Leap Wine Cellars, Conn Creek, Patz & Hall, and Erath wine brands. Altria also imports and sells Antinori, Torres, and Villa Maria Estate wines.
The company also has a substantial investment in AB InBev (NYSE: BUD), the parent company for Budweiser and several other popular beers. It owns 10.5% of the world's largest brewer.
But what excites us the most about its future is that it's branching out into the world of cannabis.
Altria also owns 45% of Cronos Group Inc. (NASDAQ: CRON), a leading cannabis company. That plugs it into what's going to be one of the most explosive sectors on the market over the coming years.
When it comes to bad habits and steady profits, Altria pretty much covers all the bases. And what all these sectors have in common is they are near recession-proof. People are buying these products whether stocks are up or down or in between.
The company has generated over $8 billion in free cash flow over the last year. Six billion dollars of that was returned to shareholders as cash dividends.
Right now, that equates to a yield of 8.43%. Lock it in now, because the cash will keep coming even as the share price grows.
Think of This Stock as a Cash Machine
Phillip Morris International Inc. (NYSE: PM) sells Phillip Morris brands outside the United States. It has been making a big push into a next-generation nicotine product comprising combustibles, heated tobacco, and vaping. It has an early lead in heated tobacco products, and many think that will become a much bigger business than it is today.
While there is a global trend toward reducing smoking, it's not happening all that fast. Nicotine is addictive, and many people trying to quit soon find themselves once again outside in the rain to get a quick smoke during their break.
Phillip Morris is also a free cash flow machine that pays out fat dividends to shareholders. At the current price, the stock yields 6.48%.
That will line your pockets for years to come.
But our top dividend stock has even higher payday potential, and it's an opportunity that won't last long at these prices.
In fact, it just hiked its dividend right in the middle of the latest downturn...
Best High-Yield Dividend Stock to Buy Today
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We all saw the footage earlier this month. The minute Las Vegas opened its doors, the casinos were packed with gamblers. After being on lockdown for an extended time, many people were almost desperate to get out, have a few drinks, and blow some of their cash around the tables.
MGM Resorts International (NYSE: MGM) has opened several of its hotels and plans to have five more open by July 1. Luxor and the Shoppers at the Mandalay Bay Place will reopen for the public on June 25. ARIA, Mandalay Bay, and Four Seasons Las Vegas will open for business on July 1.
In addition to its Las Vegas properties, MGM owns hotels and casinos all over the country. It has a total of 29 hotels and casinos. The company also owns and operates Las Vegas Strip Resorts, Primm Valley Golf Club, and Fallen Oak golf courses.
MGM will take a hit from COVID-19, but it has more than enough cash on hand to operate through the crisis. In fact, it has enough money to remain viable until the end of 2021 even if no gamblers enter the casino until then and no rooms are booked.
We know that's not going to happen.
I don't want you to buy MGM, however.
I want you to consider MGM's landlord: MGM Growth Properties LLC (NYSE: MGP).
MGM Properties owns and leases back the properties to MGM many of the casinos it operates. It has long-term leases, and even as the outlook was bleak, MGM said on a conference call that it had no intention of delaying or forgoing rent payments during the shutdown.
MGM Properties did something this month that we have not seen too many REITs do since March. The REIT raised its dividend by $0.05 to $1.95 a share. While not a massive increase, many REITs have had trouble collecting rents and had to cut or eliminate their payouts. MGM Properties has a tenant with lots of cash that is committed to paying the rent, so it was able to boost its payout.
MGM Properties yields 6.45% at current prices.
Focusing on smoking, drinking, and gambling is one way to make sure that cash flows into your account every quarter. No matter what is going on in the world, people do love to enjoy their bad habits.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.