The yield of the average financial stock is just 1.5%. And if you are willing to buy good companies working through what are likely to be temporary problems, you can get much higher yields.
Right now, long-term investors looking for high yields should dig into T. Rowe Price(NASDAQ: TROW), Toronto-Dominion Bank(NYSE: TD), and W.P. Carey(NYSE: WPC). Here’s a quick primer on each one of these high-yield stocks.
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T. Rowe Price is an asset manager. It charges fees for providing financial services to customers who buy its mutual funds, exchange-traded funds (ETFs), and other investment products.
The key figure for investors here is assets under management (AUM), which rise and fall as customers deposit and withdraw funds and as the market goes up and down. The market tends to be more impactful than customer money flows. In fact, customers tend to stick around for a long time because moving money between financial providers is a difficult and time-consuming task. In other words, T. Rowe Price has an annuity-like business in some ways.
That said, T. Rowe Price’s historical strength is in mutual funds, a product type that is being displaced by ETFs and alternative assets. That’s not good, and it has investors worried about the stock. However, assets are sticky, and management is shifting into the areas to which customers are gravitating.
That suggests T. Rowe Price will adjust in time to changing industry dynamics. And it has more than enough financial power to revamp its business, noting that the company has no long-term debt on its balance sheet.
That’s why the 38-year dividend streak isn’t likely to end anytime soon, and why long-term dividend investors can be confident in the hefty 4.4% dividend yield.
Toronto-Dominion Bank, usually just called TD Bank, is the second-largest bank in Canada by deposits. It is the sixth-largest bank in North America when you include its U.S. business in the picture. And it has paid a dividend every year since 1857!
Note that neither the Great Depression nor the Great Recession ended that streak. TD Bank knows how to deal with tough times.
And the Canadian banking giant, which has a hefty dividend yield of 5.3%, is dealing with tough times today. To be fair, the pain is self-inflicted because the company’s U.S. business failed to detect and stop money laundering. That cost the company financially and in reputation.
But the biggest problem is that TD Bank is now under an asset cap in the United States, which will, effectively, stymie the bank’s growth plans. Although the Canadian business is unaffected, U.S. expansion was expected to be TD Bank’s growth engine. It will take time to earn back regulator and investor trust.
However, you will get paid very well while you wait for this survivor to muddle through hard times again. And if over 100 years of history is any guide, TD Bank will weather this crisis.
When it comes to hard decisions, W.P. Carey’s choice to reset its dividend after 24 consecutive annual dividend increases must have been a tough call to make. But it was the right move for the real estate investment trust (REIT), since jettisoning its office portfolio (which was as high as 16% of rents) removed a huge business headwind.
Unfortunately, exiting office couldn’t be achieved without a dividend reduction. That said, you know it was a reset and not a cut because W.P. Carey got right back to its normal quarterly increases the quarter after the reset. This was a strategic decision to position the REIT for the future better. But investors are still worried, not unreasonable, and the yield is a lofty 6.3%.
What’s left after the change is a REIT with a heavy weighting in industrial assets (64% of rents), a modest exposure to retail (22%), and a varied collection of other assets (12%). It also has notable investments outside the U.S. market, at 41% of rents.
Simply put, W.P. Carey is one of the most diversified REITs you can buy. And the office exit has also left it with cash to invest in future growth opportunities. If you can accept that the dividend cut was really just a reset, this is one high-yield stock that even conservative dividend investors will probably want to own.
Every business faces hard times and has to figure out how to survive or, well, they get tossed into the Wall Street dust bin. Right now, T. Rowe Price, TD Bank, and W.P. Carey are all dealing with some headwinds. However, they are all good companies with solid histories of muddling through difficult periods. Add in the well-above-average yields each offers, and one of these stocks might find its way into your portfolio in November.
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Reuben Gregg Brewer has positions in Toronto-Dominion Bank and W.P. Carey. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
