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Finding reliable high-yield dividend stocks has been harder than ever since the start of the coronavirus pandemic.
While stocks have staged an impressive rally this summer, that's only hurt yields.
That's normally a good problem to have, but many companies are cutting or reducing dividends to conserve cash and protect their balance sheets. That's made earning income from stocks that much harder.
And if Congress doesn't come up with some sort of stimulus plans, many of those collecting the extended unemployment benefits will struggle to pay rent, which will cause more dividend disruptions in some industries.
That's just how it works.
So, what is an investor looking for passive income to do?
The key to successful income investing during confusing times like these is to ignore the bells and whistles. You can ignore the junk bond funds promising over-the-moon yields or distressed companies hoping to lure in investors with an unsustainable payout.
We need to look for dividend-paying companies with common sense businesses that have staying power. The key to a reliable dividend stock is the business behind it. Without consistent cash flowing in, there won't be any left to pay shareholders.
And while few companies have been immune to the economic downturn, there are ways to find dividend stocks that are less likely to see dividends slashed. Focus on dividend payers that have recent buying activity by corporate insiders. Officers and directors won't be buying shares of stock if they know the dividend is unsustainable.
To help you add income to your portfolio at a time when it seems nearly impossible, I've researched the companies that best fit this criteria. That means zeroing in on must-have industries, searching corporate balance sheets to find solid companies, and looking for insider buying.
That's given me three of the best high-yield stocks you can be comfortable adding to your portfolio right now…
AT&T Is a Dividend Aristocrat for a Reason
Dividend Yield: 7%
AT&T Inc. (NYSE: T) has always been a favorite stock of dividend investors, and it should be one of the first places income-seeking investors turn right now. The stock is yielding more than 7% at current prices. The price of AT&T may fluctuate with the market, but this is not a company that is a threat to go out of business. Communication is the backbone of the global economy, and AT&T will be at the epicenter of the new 5G technology.
AT&T is a dividend aristocrat that increased its payout 36 years in a row, so your quarterly check can be counted on to keep rolling in and be a little bit bigger every year.
Insiders like what they see at the company right now too. Buying has been steady since the pandemic rocked the markets a few months ago. The most recent purchase was by Director Stephen Luzco, who purchased $2.9 million worth of AT&T stock in late July.
Get Monthly Dividends with This Income Fund
Dividend Yield: 9%
One of the more unusual high-yield opportunities with insider buying is the Special Opportunities Fund Inc. (NYSE: SPE), a closed-end fund run by Phillip Goldstein's Bulldog Investors. Goldstein has a very long track record of successful investing in heavily discounted closed-end funds. He will take an activist stance at times to try and force the management of funds he owns to do things like buy back stock and conduct tender offers to reduce the discount to the net asset value of their funds.
Here is the kicker to this opportunity. The funds owned by the Special Opportunities fund already trade at a steep discount to the stocks and bonds they own. Now the Special Opportunities fund is trading at a discount of almost 11% to the value of the closed-end funds it holds. Thanks to this double discount, you are buying stocks, bonds, muni bonds, REITs, MLPs, and other assets at huge discounts from their market value.
On top of this, most of the funds Goldstein owns in the fund pay high dividend yields. Because of that, the Special Opportunities Fund currently yields over 9%. Best of all, for income seekers, it pays dividends monthly.
Phillip Goldstein sees both the irony and opportunity of buying a discounted closed-end fund that buys deeply discounted closed-end funds. He has been a consistent buyer of the fund he manages since the beginning of July.
This High-Yield Dividend Stock Is Growing Too
Dividend Yield: 7%
Kinder Morgan Inc. (NYSE: KMI) has seen its energy infrastructure business take some hits in 2020 due to the coronavirus and energy market insanity. This company owns and operates approximately 83,000 miles of pipelines and 147 storage terminals.
But as long as we use oil and gas in this country, Kinder Morgan will be cruising along. The stock has taken a hit with the shares down over 40% this year, which has attracted the attention of Founder and Chair Richard Kinder. He sees his company as massively undervalued, and he's taken full advantage of the deal.
Kinder himself has made several purchases of stock in the company he founded since March. His most recent buy was just last week, when he made an open market buy of 300,000 shares worth over $4 million.
Kinder Morgan's shares yield over 7% at the current price. Kinder will likely pay out about $2.38 billion a year in dividends. That is well covered even by the reduced expectation of $4.59 billion in the distributable cash flow that management expects its assets to produce in 2020.
In difficult times, there can be a temptation to overthink income investing strategies. It probably makes more sense to stick to the basics and acquire income-producing companies and assets that insiders are buying. They know what is going on with the business and are highly unlikely to make open market buys when they know the payout will be slashed soon.
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