Investing for income is becoming a scary proposition. As stock prices rise and, consequently, yields fall, finding substantial income in today’s market is a tough job. Despite the recent spike in interest rates, rates remain punishingly low for those with savings who want to earn income from their investments.
As a result, investors may be tempted to chase yield from speculative stocks or sectors of the market that are obscure and fraught with risk. Never fear, investors: there are still highly profitable stocks from easily understood industries that pay you 5% or more to own them.
Look here for hefty yields
Telecom giant AT&T Inc. (NYSE:T) almost needs no introduction. The company is a Dow 30 component and is one of the most well-known and valuable brands in the world. AT&T Inc. (NYSE:T) carries a $190 billion market capitalization and has provided slow-and-steady returns for decades.
In its most recent quarterly report, AT&T Inc. (NYSE:T) again displayed what its investors take for granted: reliable growth and solid cash flow. The company posted 12% higher quarterly diluted earnings per share year over year, and nearly $4 billion in free cash flow.
Like most telecoms, AT&T Inc. (NYSE:T) uses the bulk of its free cash flow to pay a generous dividend to shareholders. The company last raised its dividend in the fall of 2012, marking the 29th consecutive year of a dividend increase. At recent prices, the stock yields 5.1% annualized.
Two more in the energy space
On the topic of fantastic cash flow generation and hefty dividend yields, the energy sector has many names that fit the bill. That shouldn’t come as much of a surprise; after all, the world, and in particular emerging economies, have a seemingly unquenchable thirst for energy.
This has resulted in massive profits (and dividends) for investors. One high-yielding international energy company is Royal Dutch Shell plc (ADR) (NYSE:RDS.B), which is based in the Netherlands.
In May, the company announced first-quarter earnings grew 3% to $7.5 billion, and its oil production increased 2% year over year.
Royal Dutch Shell plc (ADR) (NYSE:RDS.B) not only pays a big dividend, but the company actually increased its most recent payout by nearly 5%.
The company’s $3.60 per-share annualized payout yields nearly 5.5% at recent prices. Of course, an integrated energy company like Royal Dutch Shell plc (ADR) (NYSE:RDS.B) is critically tied to oil prices. Should oil prices fall considerably, as they did in the most recent recession, the company will have trouble maintaining future dividend increases.
That’s where Master Limited Partnerships come in handy. Oil and gas MLP’s, as opposed to traditional oil companies, are not dependent on high oil prices to maintain their cash flows. MLP’s operate tanks and pipelines used to store and transport oil and gas products, and are therefore much more like toll roads.