Investing in high-yield dividend stocks can be a great way to generate more income. Many companies offer above-average payouts, while the best ones routinely increase their dividends.
Park Hotels & Resorts(NYSE: PK), Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), and EPR Properties(NYSE: EPR) are great ways to satisfy your desire for income. Here's why they stand out to a few Fool.com contributors as great high-yield dividend payers to buy for income this year and those to come.
A monster yield on an undervalued asset
Tyler Crowe (Park Hotels & Resorts): Hotel real estate is a binary market right now. Hotels that are geared toward leisure and vacation travel are doing awesome. Those that are designed to cater to business travelers are doing awful. Park Hotels & Resorts owns some of both. Its properties include some major destination resorts such as the Hilton Hawaiian Village Waikiki Beach Resort and the Waldorf Astoria Orlando. It also owns major business travel hotels such as the New York Hilton Midtown. Even though its hotel portfolio is only about 28% geared toward business travel, the market seems to be focusing almost exclusively on the business travel side of the equation.
Back in June, Park Hotels announced it was turning over the keys to two Hilton-operated hotels in downtown San Francisco to its lenders. A real estate company letting some of its properties default on their debt and fall into receivership sounds terrifying, but it will likely benefit the business in the long term. Business travel in the downtown San Francisco area has been hit harder than other central business districts, and Park's approximately 3,000 hotel beds in the area were operating at a loss. After walking away from the properties, the company will generate about the same amount of adjusted EBITDA while reducing its net-debt-to-EBITDA ratio from 6.0 to 5.2.
Despite Parks arguably becoming a better business after the San Francisco exit, the company's stock trades for a significant discount to many of its hospitality REIT peers. As of this writing, it has a dividend yield of 8.9% and a price-to-book-value ratio of 0.8. This hotel REIT looks like it is mispriced, and investors may want to take a deeper dive.
Buy and forget
Matt DiLallo (Schwab U.S. Dividend Equity ETF): There are lots of great higher-yielding dividend stocks. That can make it difficult to choose which one to buy at any given time.
The Schwab U.S. Dividend Equity ETF makes it so you don't have to pick between top dividend stocks. The exchange-traded fund (ETF) owns more than 100 of them. It focuses on companies that pay quality and sustainable dividends, and its shares trade like a stock. It also offers a higher dividend yield than average -- over the trailing-12-month period, its yield was 3.6%, more than double that of an S&P 500 index fund.
The ETF's portfolio of top dividend stocks is diversified. While its top three holdings are all healthcare stocks (AbbVie, Merck, and Amgen), that sector only makes up 16.6% of its total value (second to industrials at 17.7%). The fund also counts dividend stalwarts like Coca-Cola, Verizon, and Chevron among its top 10 holdings. It typically owns companies with above-average yields and payouts that steadily rise each year. (Coca-Cola has increased its payout for more than 60 straight years, while Chevron has delivered more than three decades of dividend growth.) That has enabled the Schwab U.S. Dividend Equity ETF to steadily increase its cash distributions to investors.
SCHD Dividend data by YCharts.
That upward trajectory in ETF distributions should continue. While there will likely be some variability from payment to payment depending on its holdings and when they pay their dividends, the total annual income generated by the ETF should rise as the underlying companies grow their payouts. That makes it an excellent option for those seeking an attractive and growing income stream in 2024 and beyond.
Theatrical apocalypse? More like an investing opportunity
Jason Hall(EPR Properties): The movie theater industry is still struggling in North America, and EPR is heavily exposed to it. A year ago, well above 40% of its rental income came from theaters. The good news is that management is delivering on its promise to reduce its exposure to theaters. It's making good progress on selling off a portion of this portfolio, bringing the exposure of the real estate investment trust (REIT) down to 39% last quarter, even as occupancy and revenues stabilize.
Yet the market is still treating EPR like it's on the cusp of trouble. At recent prices, shares are still more than 30% below pre-pandemic levels, while the S&P 500 is up by 48%. Meanwhile, on a total return basis, the REIT is down by about 16%, while the index has delivered a 58% gain over that period.
Considering the progress it has made in reducing its theater exposure and the strength of the rest of its portfolio (not to mention the room it has to grow in that $100 billion experiential real estate market), I think EPR looks incredibly attractive. At recent prices, its dividend -- which it distributes monthly -- yields nearly 7%.
In fairness, the market is starting to see the potential. EPR shares did deliver a total return of almost 40% in 2023. But the stock is still trading at a bargain valuation compared to its historical levels even after last year's strong run-up, and remains worth buying now and holding for many years to come.
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Jason Hall has positions in EPR Properties. Matthew DiLallo has positions in Chevron, Coca-Cola, EPR Properties, and Verizon Communications. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool recommends Amgen, Chevron, EPR Properties, and Verizon Communications and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
