Finding ultra-high-yield dividend stocks is not for the faint of heart, since it often requires dipping your toes into more turbulent waters. But if you are careful about the companies you select (and don’t just buy the highest-yielding stocks), you can find some real diamonds in the rough. Right now it looks like Wall Street may be underestimating the potential of W.P. Carey(NYSE: WPC), Bank of Nova Scotia(NYSE: BNS), and Innovative Industrial Properties(NYSE: IIPR). Here’s why you might want to buy these high yielders and hold on for a decade, or more.
In one very important way, W.P. Carey started 2024 out on the wrong foot. The real estate investment trust (REIT) cut its dividend after 24 consecutive annual increases. That’s bad news, but there’s an odd wrinkle. It started to increase the dividend again the very next quarter — and each quarter after that, too, effectively resuming the quarterly increase cadence that existed prior to the cut. That cut was really a reset.
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At the end of 2023, W.P. Carey announced that it was going to exit the office sector, which at the time accounted for around 16% of rents. The logic for that move is sound, given that the office sector is facing material headwinds. Instead of dealing with the drag of a troubled sector for years on end, management chose to leave it all at once, even though it necessitated a dividend reset. The move has, notably, left W.P. Carey with cash that it can invest for future growth. So this decision has, in many ways, left the REIT in a better long-term position, which was what management was going for.
However, Wall Street has taken a show-me attitude, and the REIT’s dividend yield is a lofty 6.2%. It will take some time for W.P. Carey to invest that cash and prove that this was a good strategic choice. Buying now gives you that huge yield and sets you up to benefit from what is expected to be a higher growth rate going forward.
Speaking of big strategic moves, Bank of Nova Scotia, more commonly known as Scotiabank, has also decided to embark on what will likely be a multi-year pivot. At one point, the Canadian bank was looking to expand into Latin America. However, the region’s economic volatility left the bank lagging its peers. So, now, Scotiabank is looking to exit less desirable Latin American markets and refocus on more desirable ones. It’s also trying to increase its exposure to the U.S. market, which it had largely skipped over under its previous approach.
There’s no way Scotiabank will do all this in a year or two. That’s true even though it recently bought roughly 15% of KeyCorp(NYSE: KEY), which materially increased its U.S. exposure. It’s understandable that Wall Street is cautious, given the execution risk involved with this pivot. But for dividend investors looking for reliable high-yield stocks, Scotiabank is probably worth the risk. The bank has paid a dividend every single year since it started paying dividends in 1833 (that’s not a typo!).
If you don’t mind collecting a huge 5.6% yield from a reliable dividend payer, Bank of Nova Scotia might be a good fit for your portfolio as Wall Street worries about its shift to a slightly different business approach.
Innovative Industrial Properties is offering investors a lofty 7.4% dividend yield. The dividend has been increased each year for seven years (note that the REIT only came public in 2016). And the unique market Innovative Industrial serves is expected to grow by 50% over 2023 levels by 2028!
There’s got to be something missing here. That would be the not-so-minor fact that Innovative Industrial Properties owns marijuana-related assets, with a heavy focus on grow houses. The ongoing trend toward legalization is a good thing, but it’s not a smooth or even process. Some investors might not want to get involved, given the regulatory and political twists and turns. But if you can handle a little uncertainty, the longer-term trend certainly suggests that marijuana is a growth industry — and Innovative Industrial is a picks-and-shovels (and high-yield) way to play it.
Clearly, W.P. Carey, Scotiabank, and Innovative Industrial all have additional risks along with their high yields. But the discerning dividend investor will likely conclude that the extra risk is being adequately compensated for via the lofty dividends these companies offer. Sure, it will probably take years for each of these stories to play out. But that just means you get to collect outsized income streams (perhaps for decades to come) if you lock in the stocks today while Wall Street is still trying to figure these companies out.
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Reuben Gregg Brewer has positions in Bank Of Nova Scotia and W.P. Carey. The Motley Fool recommends Bank Of Nova Scotia and Innovative Industrial Properties. The Motley Fool has a disclosure policy.
