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Lisa Springer

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The real estate sector has, simply put, been a loser in 2020.

Real estate investment trusts (REITs), which own and operate various types of properties and facilities, are off nearly 11% versus a 6% decline for the S&P 500. But there’s a world of difference separating the sector’s best REITs and its worst.

Much of the pain in real estate has come courtesy of retail-focused companies, many of which have lost more than 50% of their value as investors correctly surmised that stay-at-home orders would minimize shopping trips and curtail customer spending. Office REITs have experienced outsized struggles, too, as shuttered businesses are unable to pay rents, and as large-scale work-from-home strategies have investors rethinking the future of office space.

Not every REIT sector has been equally affected, however. Some REITs are riding out the pandemic shutdowns relatively unscathed – and some are even benefiting from the recent sea changes.

However, while defensive business models are an important characteristic to have when determining REITs to buy, other qualities should be considered, too. Solid balance sheets are a must. Conservative payouts, which leave room for dividends to be easily covered in the event of a shock, and raised in the future when all is well, are ideal, too.

Here are nine of the best REITs to buy not just for their durable businesses, but also their financial strength and dividend coverage.

9 Best REITs to Buy for COVID-19 Protection | Slide 2 of 10

Public Storage


MARKET VALUE: $34.4 billion

2020 TOTAL RETURN: -6.6%

DIVIDEND YIELD: 4.1%

Self-storage REIT Public Storage (PSA, $196.97) has been around for nearly 50 years. This REIT owns approximately 2,500 storage facilities across 38 states representing 170 million square feet of leasable space. In addition to its U.S. sites, Public Storage owns interests in 234 self-storage facilities in Europe via its Shurgard investment and 27.5 million square feet of commercial space via holdings in PS Business Parks.

Self-storage facilities are considered an essential business, so the REIT’s sites have continued to operate during the pandemic. This has allowed customers to move in or out, access their property and pay rent.

The REIT beat analyst estimates in the March quarter by delivering 4% growth in core funds from operations (FFO, an important profitability metric for REITs) per share. It also improved same-store occupancy to 92.7%, up 6 basis points year-over-year; a basis point is one one-hundredth of a percentage point. However, it did warn that bad debt losses might rise slightly from historical levels, which have averaged less than 2% of rents.

PSA sticks out among the best REITs to buy now because of its fortress-like balance sheet, which reflects its utilization of preferred stock to finance its operations, rather than loans. Debt is limited to a measly 7% of capitalization. Meanwhile, the dividend accounts for just 74% of its trailing 12-month FFO, which is a low, safe ratio for REITs.

While the dividend has been stuck at its same rate since 2017, Public Storage has paid out a regular cash distribution for more than 30 consecutive years.

9 Best REITs to Buy for COVID-19 Protection | Slide 3 of 10

Extra Space Storage

MARKET VALUE: $12.2 billion

2020 TOTAL RETURN: -9.8%

DIVIDEND YIELD: 3.8%

Extra Space Storage (EXR, $94.38) is America’s second largest self-storage REIT, owning and/or operating more than 1,800 properties encompassing 135 million square feet of leasable space. Half of its properties are owned by the company; the others consist of properties managed for others (36%) and joint ventures (13%).

Extra Space Storage has a national footprint across 40 states, with California, Florida and the Northeastern U.S. combining to represent 43% of the portfolio.

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This REIT has delivered strong performance over the past five years. As of its March investor presentation, the company had generated five-year average growth of 5.7% in same-store revenues and 7.1% in same-store income – rates much higher than its peers.

For the March quarter, Extra Space’s FFO per share grew by 7% year-over-year; FFO growth over the past five years has been exceptional, at more than 13% annually. Same-store occupancies declined, but only by 10 basis points, to 91.3%.

The REIT’s debt load is manageable at 44% of capitalization, and annual free cash flow provides nearly three times the coverage it needs to make annual interest payments. Meanwhile, EXR’s dividend payout, at 72% of FFO, provides a wide margin of safety if rents dip, and has supported average annual dividend hikes of 8.8% over the past five years. That puts Extra Space among the best REITs to buy for payout security and growth.

9 Best REITs to Buy for COVID-19 Protection | Slide 4 of 10

CyrusOne


MARKET VALUE: $8.3 billion

2020 TOTAL RETURN: +11.5%

DIVIDEND YIELD: 2.8%

CyrusOne (CONE, $72.21) owns approximately 50 data centers worldwide representing more than 4 million square feet of leasing space.

CyrusOne provides mission-critical IT infrastructure mainly to Fortune 1000 companies, which represent 77% of its rents. An added layer of protection is provided by embedded rent escalations in 76% of its leases and average remaining lease terms of 53 months across the portfolio.

Work-at-home and other IT initiatives are generating significant new demand for data services, and the REIT’s bandwidth bookings have doubled year-over-year. Occupancy rates currently average 85% for the domestic portfolio and 91% for the international portfolio, leaving plenty of room for growth.

Thanks to its status as an essential business in most countries, CyrusOne has been able to continue developing new facilities that will expand its geographic footprint by 20% when completed.

CONE delivered an impressive March quarter despite the coronavirus, with normalized FFO per share up 18% year-over-year. This data center REIT signed $60 million of new leases during the quarter and ended March with its highest quarterly backlog ever, representing $610 million of contract value.

The REIT has an investment-grade credit rating and recently reduced its interest rate payments by more than 250 basis points via refinancing. Meanwhile, CyrusOne’s dividend payout ratio is exceptionally low at 32%. That not only means the dividend is safe, but that CONE should have ample room to continue improving it at a rapid rate; it has averaged 9.7% annual dividend growth over the past five years.

9 Best REITs to Buy for COVID-19 Protection | Slide 5 of 10

Digital Realty Trust

MARKET VALUE: $37.4 billion

2020 TOTAL RETURN: +17.3%

DIVIDEND YIELD: 3.2%

Digital Realty Trust (DLR, $139.32) is another player in the digital infrastructure space.

This REIT owns 267 data centers worldwide, serving more than 4,000 customers and providing roughly 145,000 cross-connects, which are connections between companies and network providers such as Verizon (VZ) and AT&T (T).

Digital Realty has grown adjusted FFO by 9% annually on average over the past five years, fueled in part by acquisitions. For instance, it acquired 54 assets in Europe with its 2019 purchase of Interxion, eight assets and six development projects in Brazil by buying Ascenty in 2018, and 12 assets and six development projects in the U.S. via a 2017 acquisition of DuPont Fabros Technology.

However, Digital Realty Trust also is growing with its existing customers as they deploy more hybrid cloud solutions. The REIT is capitalizing on new high-growth cloud segments such as artificial intelligence, the Internet of Things, autonomous driving and virtual reality.

The REIT has a blue-chip customer base; more than half of its top customers – including Facebook (FB), Oracle (FB) and Comcast (CMCSA) – have investment-grade credit ratings. Its top 20 customers account for 53% of annualized rents.

While core FFO per share declined by 6% in the March quarter, the REIT still is guiding for 2020 FFO per share of $5.90 to $6.10, which would easily cover its $4.48 annual dividend. The dividend, which has grown for 14 consecutive years, has swelled by 5.7% annually over the past five years.

Digital Realty also offers a solid BBB-rated balance sheet and has delivered uninterrupted growth in core FFO per share since 2006.

9 Best REITs to Buy for COVID-19 Protection | Slide 6 of 10

QTS Realty Trust

MARKET VALUE: $4.0 billion

2020 TOTAL RETURN: +24.5%

DIVIDEND YIELD: 2.8%

We’ll tackle one more data center REIT: QTS Realty Trust (QTS, $66.95).

QTS is a newer digital REIT that owns, operates or manages 24 data centers representing more than 6 million square feet of leasing space and serving approximately 1,200 customers, mostly in North America and Europe. The majority of its customers come from the digital media and IT service industries. Conversely, the REIT’s exposure to customers from COVID-19-impacted industries such as retail, hospitality and transportation is less than 10%. That has helped fuel a 24%-plus return that puts it among the best REITs so far in 2020.

QTS Realty Trust grew operating FFO by more than 15% during the March quarter. It also ended the period with record annualized booked revenues, boding well for 2020 performance. The company expects revenues, EBITDA and operating FFO per share will all improve this year. It has averaged nearly 6% operating FFO growth over the past five years.

Development activities should support QTS Realty Trust’s future growth. The REIT brought 21 megawatts of power and 60,000 feet of leasable space online during the March quarter. It’s also completing projects in Chicago, Atlanta, Richmond and other cities that will be ready for customers later this year.

QTS Realty Trust should be able to fully fund 2020-21 development activities thanks to $342 million recently raised through forward stock sales. Long-term debt is only 45% of capitalization, and the REIT has no significant debt maturities before 2023.

This REIT, which was founded in 2003 and went public in 2013, obviously has a short dividend history. But the payout has nearly doubled since its IPO, and it pays out a modest 70% of FFO as dividends.

9 Best REITs to Buy for COVID-19 Protection | Slide 7 of 10

Crown Castle International

Milky way galaxy over communication tower for broadcasting during clear sky. Taken in Mt. Bromo, Surabaya, Indonesia.

MARKET VALUE: $68.0 billion

2020 TOTAL RETURN: +15.6%

DIVIDEND YIELD: 2.9%

Crown Castle International (CCI, $163.06) is a leader in cell towers and shared communications infrastructure for the U.S. market. The REIT owns approximately 40,000 cell towers and 80,000 miles of fiber, which also support 70,000 smaller cell structures used to bolster capacity in data-dense areas.

America’s “Big Four” wireless carriers contribute nearly 75% of this REIT’s site rental revenues. Crown Castle International also benefits from the safety of $24 billion of recurring revenues from these carriers tied to contracted lease payments over five years. And CCI is among the best REITs to capitalize on America’s nationwide 5G rollout, which requires a denser cell tower network to carry the load.

Crown Castle announced marginal growth in adjusted FFO per share for the March quarter. But it still expects 2020 AFFO will improve by 8% year-over-year – better than its five-year average AFFO growth of 6%.

The REIT has an investment-grade balance sheet, no debt maturities in 2020 and $5 billion of available liquidity on credit lines. Its fixed-rate debt carries a low 3.7% interest rate.

Crown Castle aims for 7% to 8% annual dividend growth, and it met that expectation last October with a 7% hike to $1.20 per share quarterly. The REIT’s dividend payout ratio is moderate, at 84% of AFFO.

9 Best REITs to Buy for COVID-19 Protection | Slide 8 of 10

Gladstone Land Corporation

Aerial View Of Midwestern Green Landscape 2

MARKET VALUE: $317.4 million

2020 TOTAL RETURN: +16.7%

DIVIDEND YIELD: 3.6%

Farming isn’t perfectly recession-proof, but it’s proving a durable business for Gladstone Land (LAND, $14.87). The REIT owns 113 farms and approximately 88,000 acres of prime farmland across 10 states that it leases out to fruit, nut and vegetable farmers. The value of its portfolio is estimated at $892 million, which is nearly three times the firm’s current market value.

The REIT’s farmer tenants grow higher-margin specialty crops such as blueberries, figs, and almonds that are sold directly to major grocery chains like Kroger (KR) and Walmart (WMT). During April, all of Gladstone Land’s farms were rented out and current on rent payments.

Gladstone’s adjusted FFO per share rose 47% during the March quarter; AFFO growth has averaged 4% over the past five years. Meanwhile, the value of its farmland portfolio grew nearly 2%. A solid mix of new farms in its acquisition pipeline and leases renewing at higher rates support Gladstone Land’s 2020 growth expectations.

Management and other insiders own an impressive 11% of the company, suggesting a strong focus on maintaining and growing the dividend.

Gladstone Land is among the best REITs to buy for sheer dividend tenacity. LAND has paid 97 consecutive monthly dividends and hiked payments 18 times over 21 quarters. An AFFO payout ratio of 85% provides a safety net and room for additional dividend growth.

9 Best REITs to Buy for COVID-19 Protection | Slide 9 of 10

Stag Industrial

MARKET VALUE: $4.1 billion

2020 TOTAL RETURN: -11.8%

DIVIDEND YIELD: 5.3%

Stag Industrial (STAG, $27.24) is better positioned than most warehouse REITs to handle the fallout from the pandemic due to its high-quality balance sheet, diverse tenant base (420 at present) and well-laddered lease expirations. The REIT’s largest tenant, Amazon.com (AMZN), is aggressively scaling up to meet robust e-commerce demand. In addition, more than 60% of Stag Industrial’s tenants are very large companies generating over $1 billion of annual sales each.

Stag Industrial owns 456 warehouses, representing nearly 92 million square feet of leasable space across 38 states. The portfolio occupancy rate is 96.2.

The REIT’s core FFO per share increased by 4.4% year-over-year during the March quarter. Cash available for distribution improved 14% to $56 million. This provided more than threefold coverage of the March-quarter dividend. Occupancy rates increased, and FFO benefitted from a 2.5% rise in rents from embedded lease rent escalations. Only 28 of the REIT’s 519 leases expire this year, suggesting occupancy rates should remain high.

Stag Industrial’s net debt totals only 46% of capitalization and 4.4 times EBITDA. In addition, this REIT has nearly $325 million of cash on hand, which is more than enough to cover 2020 dividends (if it came to that) and debt maturities. But Stag Industrial, a monthly dividend stock, is guiding for 2020 core FFO between $1.80 and $1.88 per share, well in excess of the $1.144 per share it will need to cover its payouts.

That dividend has grown for eight consecutive years, albeit at a glacial pace of 1.3% annually.

9 Best REITs to Buy for COVID-19 Protection | Slide 10 of 10

Getty Realty

Lafayette – Circa April 2017: Citgo Retail Gas and Petrol Station. Citgo is a refiner, transporter and marketer of gas and petrochemicals II

MARKET VALUE: $1.2 billion

2020 TOTAL RETURN: -10.4%

DIVIDEND YIELD: 5.1%

Getty Realty (GTY, $28.97) is a net-lease REIT that owns convenience stores and gas stations. At present, the company owns or leases 947 properties across 35 states, primarily in urban markets. Its stations are leased to nationally known fuel brands including BP, Shell, Mobil and more.

Approximately 10% of its sites also have quick-serve restaurants for prominent brands including McDonald’s (MCD) Subway, Wendy’s (WEN) and Dunkin Donuts (DNKN). Nearly all of its tenants have remained open during the pandemic, and as of early May, Getty Realty had so far collected 97% of April rents.

As a net-lease REIT, Getty’s tenants are responsible for paying taxes, property maintenance and repair costs and insurance. The company’s average lease term is 10 years, and all leases have built-in annual rent escalators.

The REIT’s adjusted FFO per share grew nearly 10% in the March quarter, fueled by rent increases, acquisitions and effective cost management. Adjusted FFO growth over five years has exceeded 6%.

Getty’s balance sheet is strong based on a stable BBB credit rating from Fitch and a debt-to-capitalization ratio of 47%. The REIT also has $215 million of unused capacity available on its credit line. Dividend coverage is solid, too, at 82% of AFFO. That has given GTY room to grow its payout by 11% annually over the past five years.

Author: Lisa Springer

Source: Kiplinger: 9 Best REITs to Buy for COVID-19 Protection

Steep market declines in 2020 have not only been brutal on returns; they’ve also presented income investors with a conundrum. The market is suddenly flooded with a glut of high-yield dividend stocks, but dividends in general are less safe than they’ve been in more than a decade.

The S&P 500 has quickly risen from a yield of 1.8% at the end of December to a yield of about 2.1% today. That’s still not an exciting number, of course. But both inside and outside the index, a number of stocks have seen their yields double, triple or more. That has made it easier than it has been in a long time to find high-yield dividend stocks offering up sizable income of greater than 5%.

At the same time, however, the market has been flooded with a run of dividend cuts. Some companies are watching their profits plunge as people are confined to their homes, creating short-term cash crunches that are forcing them to conserve as much capital as possible simply to survive.

The trick, then, lies in identifying great-yielding names that will be able to maintain their dividends even if this shutdown triggers a prolonged recession.

Here are eight of the safest high-yield dividend stocks right now. These stocks boast several traits that speak to dividend safety, from conservative balance sheets and durable cash flows to histories of maintaining dividends through previous economic downturns.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 2 of 9

AbbVie

Courtesy AbbVie

MARKET VALUE: $124.0 billion

DIVIDEND YIELD: 5.6%

Pharmaceutical powerhouse AbbVie (ABBV, $83.99) develops treatments for autoimmune disorders, cancers, viruses and neurological conditions. The company derives roughly 60% of sales from its blockbuster drug Humira, a treatment for rheumatoid arthritis, plaque psoriasis and other conditions. Other important AbbVie drugs include Imbruvica and Venclexta (for cancer) and new therapeutics Skyrizi (arthritis) and Rinvoq (psoriasis).

Humira sales are slowing, so AbbVie plans to re-energize its business by merging with Allergan (AGN). The combined business is expected to generate more than $30 billion in annual sales. Allergan adds blockbuster drugs Botox (wrinkles and migraines) and Restasis (dry-eye treatment) to AbbVie’s portfolio.

The Allergan deal is expected to close in May, leaving AbbVie with $95 billion of post-acquisition debt. However, ABBV expects to leverage $19 billion of annualized cash flow from the combined business to trim $15 billion to $18 billion of debt by year-end 2021. AbbVie also expects to benefit from $3 billion of pre-tax cost synergies.

AbbVie is a Dividend Aristocrat on the merits of its 48-year streak of uninterrupted dividend growth, much of which is attributed to its time joined with Abbott Laboratories (ABT). As a standalone entity, AbbVie has generated seven years of dividend hikes – including a 35% boost announced in February – and an 18% annual dividend growth rate over the past half-decade

ABBV has long been among the market’s safest high-yield dividend stocks. Indeed, the stock has only declined about 10% since the bull market’s peak on Feb. 19, so its yield hasn’t gotten much of a boost from share-price declines. Meanwhile, its payout look safe given that it represents just less than half of AbbVie’s profits, and given that Aristocrats often go to greater-than-usual lengths to keep up their payouts in hard times.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 3 of 9

Bunge

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MARKET VALUE: $5.5 billion

DIVIDEND YIELD: 5.1%

Bunge (BG, $40.09) is a leading global agricultural company with operations in commodity grain products such as corn and wheat; cooking oil and fats that it packages for food manufacturers; milled flour and cornmeal; sugar; ethanol; and various fertilizers. Bunge deals in products necessary for food production, which will naturally be impacted by a business downturn, but it won’t erode completely. Bunge also recently improved its competitive positioning by trimming more than $250 million of annual expenses.

A 28% decline since Feb. 19 has launched Bunge among safe high-yield dividend stocks with a payout above 5%. But its quarterly dole appears safe for now. Adjusted operating cash flow of $1.06 billion last year provided triple the coverage of Bunge’s $317 million annual dividend. That’s no one-time thing: Cash flow has exceeded $1 billion in four of the past five years. And the company, which has increased its dividend for 18 consecutive years, announced in early March a 50-cent-per-share quarterly payout in line with its most recent dividend.

At the end of March, Baird analyst Ben Kallo added BG to his “Fresh Picks” list of stocks well-positioned to weather economic uncertainty. He likes Bunge’s healthy balance sheet and robust cash flows and thinks the company will benefit from China restarting agricultural purchases this year.

Insiders also appear bullish on Bunge’s prospects; CEO Greg Heckman purchased of a whopping $4.8 million worth of BG stock during March.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 4 of 9

Chevron

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MARKET VALUE: $156.0 billion

DIVIDEND YIELD: 6.2%

In response to crude oil prices nearing 20-year lows, integrated energy giant Chevron (CVX, $87.17) has already taken aggressive action to protect its dividend, which the company calls its No. 1 priority. Chevron is cutting 2020 exploratory spending by roughly 30% and suspending share repurchases.

Chevron is the second largest U.S. integrated energy company – behind Exxon Mobil (XOM) – and has production and refinery operations worldwide. The company has a major drilling presence in the Permian Basin and Gulf of Mexico. It also operates refineries representing throughput capacity of 1.7 million barrels per day, as well as a network of more than 7,800 Chevron and Texaco service stations.

Thanks to a cash flow breakeven point the company estimates at roughly $51 a barrel (much lower than peers), Chevron is better positioned than most to cover expenses and its dividend even in the currently weak drilling environment.

Annual energy production exceeded 3 million barrels per day last year and the company added 494 million barrels to its proved reserves. Excluding asset sales, Chevron expects overall 2020 production to be flat and Permian Basin production to be 20% below prior guidance. Chevron also is committed to reducing run rate operating costs by more than $1 billion this year.

Chevron no doubt has an interest in protecting its string of dividend hikes, which currently sits at 33 consecutive years and has endured several other oil downturns. Dividend payments totaling just under $9 billion last year were easily covered by $12.5 billion of free cash flow.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 5 of 9

DXC Technology

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MARKET VALUE: $3.8 billion

DIVIDEND YIELD: 5.6%

DXC Technology (DXC, $15.07) provides information technology services in North America, Europe, Asia and Australia. The company, formerly known as Computer Sciences Corporation, changed its name following its 2017 merger with Hewlett Packard Enterprise’s (HPE) Enterprise Services business.

Today DXC specializes in IT outsourcing, cloud capabilities with embedded security, software applications, analytics and advisory services. The company serves more than 6,000 customers across 70 countries, including more than 200 of the Fortune 500 companies. DXC generated revenues exceeding $20 billion last year and ranked No. 122 on the 2019 Fortune 500 list.

The company is relying on digital segment growth to offset declines in more traditional businesses and is using acquisitions to expand its digital footprint. Last year DXC produced 80% growth in its digital pipeline, 50% growth in digital bookings and 16% growth in digital revenues. EPS declined in the first nine months of fiscal 2020 due mainly to integration-related costs, but operating cash flow doubled to $2.06 billion.

DXC also generated $1.2 billion of adjusted free cash flow, which covered nine-month dividend payments more than six times over. Long-term growth in free cash flow has been impressive at 11% annually over the past decade.

DXC has modest debt that’s three times free cash flow, and less than three times the company’s current cash on hand, and its dividend is an ultra-low 16% of this year’s estimated profits. The firm left its dividend intact in early March, when it announced a 21-cent-per-share quarterly payout in line with its previous payments. Nonetheless, a massive 49% decline has put DXC into a class of high-yield dividend stocks offering up more than 5% at current prices.

DXC Technology recently divested its State and Local Health and Human Services business and plans to use the $5 billion of sale proceeds to further reduce debt. Cowen analyst Jared Levin and Citi analyst Ashwin Shirvaikar both applauded the sale, which came at a higher price than expected. Both analysts maintain Buy-equivalent ratings on the stock despite acknowledging that COVID-19 could impact the business.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 6 of 9

HNI

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MARKET VALUE: $1.0 billion

DIVIDEND YIELD: 5.2%

HNI (HNI, $23.49) designs and builds office furniture and fireplace products for residential homes. The company sells office furniture under the HON, Allsteel, Maxon and other brands and distributes through independent dealers. HNI is a market leader in fireplace products, which are marketed under the Heatilator, Heat & Glo, Majestic and other brands and sold through distribution centers and showrooms across North America, Asia, Mexico and the Middle East.

Its sales are a mix of 76% office furniture and 24% hearth products.

HNI is among a number of high-yield dividend stocks whose businesses are sure to feel the effects of both the coronavirus and a recession. However, HNI is better positioned than most furniture-makers to weather a downturn due to a recent restructuring that cut expenses and bolstered margins. Despite lower sales, adjusted EPS grew 7% last year. The company’s longer-term performance has been solid, with yearly EPS increases of 13% over five years and free cash flow growth of nearly 38%.

HNI has grown its dividend continuously since 1989, with the exception of 2008-09, when it held dividends steady. Dividend growth has averaged a modest 4% over the past five years. Its cash flow covered its payout by roughly three times last year.

The company has a terrific balance sheet showing long-term debt at 28% of capitalization and only 1.3 times free cash flow. It only has $53 million in cash on hand, but that could help float the dividend for a few quarters if the company were pressed.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 7 of 9

International Business Machines

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MARKET VALUE: $107.0 billion

DIVIDEND YIELD: 5.4%

IT solutions provider International Business Machines (IBM, $120.12) greatly expanded its presence in the hybrid cloud market last year through the $34 billion acquisition of Red Hat. Thanks to Red Hat, the company now has the ability to offer open-source software to IT managers. This software is needed to modernize older applications to run in data centers and across different cloud services.

IBM was an early leader in the transition to the cloud but fell behind industry leaders Amazon.com (AMZN) and Microsoft (MSFT). Red Hat should help IBM close that gap. Cloud revenues are IBM’s fastest growing business and currently represent over 25% of sales. Managers anticipate Red Hat could contribute more than two percentage points to IBM’s annual sales growth over the next five years.

Management looks for free cash flow of $12.5 billion in 2020, which leaves plenty of room to cover $5.7 billion of dividend payments even if that forecast is cut due to coronavirus impact. In addition, IBM has nearly $12 billion in cash available to help pay the dividend in the short term if it came to that and management were willing.

IBM, while not a Dividend Aristocrat, does have an incentive to keep up its payout. Namely, at 24 years of dividend increases, it’s one year away from membership in the elite payout club. Meanwhile, a 20% decline has driven IBM into this group of safe high-yield dividend stocks with a current yield of 5.4%.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 8 of 9

Nu Skin Enterprises

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MARKET VALUE: $1.3 billion

DIVIDEND YIELD: 6.3%

Nu Skin Enterprises (NUS, $23.91) develops and sells skin care and wellness products in approximately 50 countries worldwide. Its three main brands are Nu Skin (beauty and personal care products), Pharmanex (nutritional products) and ageLOC (anti-aging products).

NuSkin sells direct to approximately 1.16 million consumers worldwide via a network of more than 800,000 independent distributors. Roughly 87% of the company’s sales are made outside the U.S. China is its largest market, accounting for approximately 30% of sales.

Nu Skin’s near-term growth strategy focuses on completing the transition of its business to the cloud (with more than 80% of sales and 90% of global transactions already taking place online), launching an innovative new skincare device system in 2020 and fine-tuning sales compensation to better incentivize and retain sales agents.

Due to its strong footprint in China, Nu Skin was earlier than most in recognizing the impact of COVID-19 and has already baked coronavirus impact into its 2020 guidance. The company anticipates a 5% to 10% sales decline and a 29% drop in earnings per share.

Nonetheless, Nu Skin should have no trouble covering its dividend. In February, the company increased its dividend to 37.5 cents per share – its 19th consecutive improvement. That comes out to $1.50 per share in annual dividends, versus analysts’ expectations for $2.01 per share, followed by a rebound to $2.49 in 2021. Moreover, the company has $345 million in cash, about $10 million more than its debt), that it can use to cover its payout in the short term if necessary.

8 Safe High-Yield Dividend Stocks Offering 5% or More | Slide 9 of 9

Patterson Companies

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MARKET VALUE: $1.5 billion

DIVIDEND YIELD: 6.7%

Last on this list of safe high-yield dividend stocks is Patterson Companies (PDCO, $15.52), a leading U.S. distributor of dental and animal health products. The company supplies consumables, equipment, software and services to approximately 100,000 dentists and dental offices across the U.S. and Canada.

Patterson entered the animal health market through its 2015 acquisition of Animal Health International and became the largest distributor of animal health products in North America, serving approximately 50,000 veterinary clinics and hospitals and livestock producers. Its sales are a mix of 57% animal health and 43% dental products.

The markets Patterson serves were chosen in part for their recession-resistant characteristics. Surveys indicate 95% of Americans value healthy teeth and more than 67% visit the dentist at least annually. In addition, 68% of U.S. households own a pet and 73% of pet-owning households visit the veterinarian at least annually.

During the first nine months of fiscal 2020, reported at the end of February, Patterson generated $128 million of free cash flow that easily covered $76 million of dividend payments. The company’s EPS gains has been inconsistent, but annual growth in free cash flow has been reliable, averaging 16% over three years and 19% over five years.

Patterson has a decent though not unimpeachable dividend history. It has delivered cash distributions for a decade, though its last improvement was an 8% hike in 2017. That said, the company in mid-March felt confident enough to declare a quarterly dividend in line with its previous payouts.

Patterson withdrew its fiscal 2020 guidance in early April but said it was still on track to achieve its goals through the first two months of its fiscal fourth quarter ending in April.

Author: Lisa Springer

Source: Kiplinger: 8 Safe High-Yield Dividend Stocks Offering 5% or More

When investors think of “insider trading,” they might think of the kind of behavior to which ex-Rep. Chris Collins recently pleaded guilty. In that case, Collins used material, nonpublic information he gained from his seat on a biotechnology company’s board to tip off his son and fiancée’s father, who were able to sell shares before the info became public.

But some insider trading is legal. And in some cases, insider buying can signal to regular investors that something positive might be in the offing.

Insiders – directors, officers and shareholders that own more than 10% of at least one class of the company’s stock – can (and do) buy and sell shares, sometimes frequently. They must abide by certain rules, such as not selling shares within six months of purchase. They also must disclose any transactions to the SEC – and these insider filings are available for public viewing, free of charge, on the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) website.

No one understands the challenges and victories of a public company better than the officers and directors who run it. Thus, when knowledgeable insiders buy or sell the company’s shares, savvy investors take note. Sometimes these trades are habitual and mean nothing – but sometimes, they can signal a change in sentiment. A sudden spurt of insider buying may signal new products coming to market or new customers signing up, or simply reflect an insider’s conviction that the stock is undervalued.

Here are 10 stocks that have seen notable insider trading over the past few months. Investors shouldn’t act solely on the basis of this recent insider buying – instead, it’s just one factor to consider when evaluating these or any other stocks. But in each case, the buying stands out for its size or irregularity, which sometimes can be taken as a sign of insider optimism.

Data is as of Oct. 2. Insider buying information gathered from the SEC’s EDGAR database.

Dish Network

MARKET VALUE: $16.2 billion

NOTABLE RECENT INSIDER PURCHASES:
$25.1 million

Dish Network (DISH, $32.93) is repositioning as a significant new player in the wireless telecom market thanks to the pending merger of T-Mobile US (TMUS) and Sprint (S). The Department of Justice requires T-Mobile and Sprint to sell parts of their business as a condition of the merger – Dish intends on being the acquirer.

Should the merger close – 17 states and the District of Columbia are suing to stop it, with a trial slated for December – Dish will own Sprint’s pre-paid phone business and customers, including Boost Mobile, Virgin Mobile and the Sprint prepaid business. In addition, Dish will own some of Sprint’s nationwide 800 MHz wireless spectrum and have complete access to T-Mobile’s network for seven years. As a result, Dish customers will be able to move “seamlessly” from T-Mobile’s nationwide network to its own new 5G broadband network.

In short, Dish would become the nation’s fourth-largest wireless service provider.

The merger agreement couldn’t come at a better time for Dish, which has been challenged by subscriber losses in its satellite TV business. During this year’s June quarter, the company’s pay-TV customer base declined by 31,000 subscribers. The subscriber loss contributed to a 7% decline in Dish’s June-quarter revenues and a 28% drop in earnings per share (EPS).

Dish is paying up for this deal, too. It will pay $3.6 billion for wireless spectrum from the combined T-Mobile/Sprint, and $1.4 billion for Sprint’s pre-paid phone business. Dish also must, as a condition of the sale, fully deploy the aforementioned nationwide 5G broadband network, covering at least 70% of the U.S., by June 2023. The company expects to invest at least $10 billion in building that network. Long-term debt already sits at $12.7 billion – which is 136% of Dish’s equity – so the buildout will put an additional strain on Dish’s already leveraged balance sheet.

Nonetheless, insider buying is inspiring confidence. Dish chairman Charles Ergen bought 500,005 shares of DISH stock worth roughly $15.7 million in early August. Later in the month, co-founder and Executive Vice President James Defranco added to his stake, spending about $9.4 million on 300,000 shares – his largest inside buy since at least Jan. 1, 2013, which is the start of available data on DISH’s insider trading.

Peabody Energy

MARKET VALUE: $1.5 billion

NOTABLE RECENT INSIDER PURCHASES
: $13.0 million

Peabody Energy (BTU, $14.51) is the world’s largest private-sector pure-play coal producer. The company operates 23 mines in the U.S. and Australia and produced 12 million tons of metallurgical coal in 2018, making it the largest U.S.-listed metallurgical coal producer. Peabody also produced 19 million tons of thermal coal last year.

Metallurgical coal is used to make steel and is experiencing strong demand from China and India. The company’s Australian mines and recently acquired Shoal Creek mine, located near a major shipping port, are well-positioned to serve the Asian market. Peabody is targeting production of 2.5 million tons of coal from the Shoal Creek mine this year. And the mine’s cash flows imply that it will pay back its purchase price in less than two years.

Peabody’s thermal coal production is purchased by utilities and burned to generate electricity. Peabody recently entered into a joint mining venture with Arch Coal (ARCH) that combines their Powder River Basin and Colorado assets into one mining complex. The joint venture is expected to create $820 million of pretax synergies and make their coal production more price-competitive with natural gas and other fuels.

Peabody has hiked its dividend three times in the past 12 months, for a total increase of 16%. The company also paid out a substantial supplemental dividend of $1.85 per share on March 20, representing a roughly 6.3% annual yield at the time. (BTU’s regular dividend yields about 4% at current prices.) However, that hasn’t quite made things right for investors; BTU shares have lost 52% of their value so far this year as lower demand and prices have crushed coal producers.

That said, Elliott Management, one of the largest activist investors in the world, bought roughly 710,000 shares of BTU, worth about $13 million, via several of its subsidiaries across several trades in August. Elliott, which hasn’t sounded off about the recent purchases, now owns about 19.9 million shares of the stock – a roughly 18.6% stake.

Ford

<> on May 10, 2018 in Miami, Florida.

MARKET VALUE: $34.4 billion

NOTABLE RECENT INSIDER PURCHASES: $8.0 million

Ford (F, $8.61) is the second-largest North American automaker (13.8% share) and the world’s sixth-largest automaker overall (6.2% share). The company produces Ford cars, trucks and SUVs, as well as luxury vehicles under its Lincoln brand. But its product of note is the F-150, which has been America’s best-selling truck for 42 years in a row.

While Ford has struggled ever since the U.S. started its trade war with China in early 2018, it has recovered somewhat in 2019, up 13% year-to-date. But its results haven’t given investors much to hope for. June-quarter revenues were flat year-over-year ($38.9 billion). EPS declined 85%, though mostly because of massive restructuring charges related to operations in Europe and South America. But even backing out those charges, adjusted earnings of 28 cents per share missed analyst expectations for 31 cents. Its 2019 earnings forecast disappointed, too.

Ford does have a few other things going on, however. It launched new models of its Ford Explorer and Lincoln Aviator during the June quarter and introduced the Ford Puma, a new crossover vehicle for the European market. The company also announced a partnership with Volkswagen (VWAGY) for a new autonomous-driving platform named Argo AI.

Deutsche Bank analyst Emmanual Rose thinks F shares have “considerable unappreciated potential” due to future cost benefits from the global restructuring, but “but investors may now wait for more visible earnings and cash flow traction, before giving the stock credit for it.”

Ford Executive Chairman William Clay Ford didn’t wait to make his insider trading move. He acquired 840,962 shares worth almost $8 million in early August, increasing his ownership stake to 1.1 million shares. That was his largest purchase, on a dollar basis, since buying up 800,000 shares for $10.9 million in March 2016.

MPLX LP

MARKET VALUE: $29.5 billion

NOTABLE RECENT INSIDER PURCHASES: $3.2 million

MPLX LP (MPLX, $27.91) is a master limited partnership (MLP) that owns and operates energy infrastructure assets such as gas and oil pipelines, gathering systems, terminals and storage facilities. The company was formed by Marathon Petroleum (MPC) in 2012 to own, operate, develop and acquire these various types of assets.

MPLX owns more than 8,000 miles of pipeline extending across 17 states, mainly in the Midwest and Gulf Coast. MPLX’s terminal facilities have 23.7 million barrels of storage capacity and its tank farms located near major refineries can hold 56 million barrels of oil.

The company closed on its $9 billion acquisition of Andeavor Logistics at the end of July. It plans to optimize its portfolio by selling non-strategic asset and using the proceeds to reduce debt and invest in higher-return projects. MPLX also has green-lit big investments in its Whistler natural gas pipeline and Wink-to-Webster crude oil pipeline – both located in the Permian Basin, located in the American Southwest.

MPLX has raised its distribution every quarter since it went public in October 2012, including a 6.4% bump last quarter to 65.75 cents per share. That’s good for a yield of 9.6% at current prices. The company keeps backing it up with strong fundamental performance; in its June quarter, distributable cash flow (DCF, an important metric of MLP profitability) improved 6.7% to $741 million.

Heavy insider trading ensued in the weeks following the closed acquisition. MPLX Chairman and CEO Gary Heminger may have signaled his approval when he purchased 42,600 shares worth roughly $1.2 million in early August. Director Dan Sandman purchased 36,630 shares worth almost $1 million early on in the month, too, and Director Gary Peiffer bought 36,800 shares worth roughly $1 million across two buys in August.

* Distributions are similar to dividends but are treated as tax-deferred returns of capital and require different paperwork come tax time.

Align Technologies



MARKET VALUE
: $14.4 billion

NOTABLE RECENT INSIDER PURCHASES: $1.0 million

Align Technologies (ALGN, $179.75) owns the Invisalign system of invisible braces, used by more than 7.2 million patients (so far) to improve their smiles. Less known to consumers is the iTero intraoral scanner, which Align developed to help dentists create dental crowns, bridges and custom implants. Dentists have made more than 17.4 million dental scans using iTero.

ALGN shares were enjoying strong gains in 2019 up until late July, when it reported its results from the June quarter. While Invisalign shipments improved by 24.6% and EPS climbed 41%, those shipments came in below analyst estimates, and worse, it reduced its guidance for the September quarter. Align cited weaker demand in China and increased competition in doctor-directed and direct-to-customer sales channels as reasons for the lower guidance.

That sparked a 25% selloff in shares that has ALGN down 14% for the year-to-date. It also sent the analyst crowd into action. Stephens analyst Chris Cooley cut his price target to $200 per share, citing worries that a structural shift in the braces market was underway – one that favors direct-to-customer suppliers. Evercore analyst Elizabeth Anderson downgraded the stock to Market Perform (equivalent of Hold). Baird analyst Jeff Johnson pulled ALGN from his firm’s top picks list.

The stock did enjoy a little insider buying in the wake of the selloff. Align CEO and President Joe Hogan showed his support by acquiring almost 5,000 shares worth about $1.0 million in early August. There was some insider selling, too. Director Joseph Lacob disposed of 40,000 ALGN shares worth roughly $7.2 million across August. However, insiders often partake in regular selling. Indeed, Lacob has sold shares several times each year since 2017 and hasn’t recorded any purchases since at least 2013.

Ryman Hospitality Properties

MARKET VALUE: $4.1 billion

NOTABLE RECENT INSIDER PURCHASES: $1.1 million

Ryman Hospitality Properties (RHP, $80.25) is a real estate investment trust (REIT) that owns four upscale Gaylord-branded conference-center resorts, as well as interests in another Gaylord-branded resort and convention center. It also boasts entertainment assets including the Grand Ole Opry and its former home, the Ryman Auditorium.

JPMorgan Chase REIT analyst Joseph Greff turned cautious on the lodging sector in July because of high valuations and what he sees as the late stage of the current lodging cycle. He downgraded ratings on several lodging REITs, including RHP, to Underweight (equivalent of Sell) and lowered all of his price targets.

That’s not a promising backdrop, but the REIT is at least posting solid results. For the June quarter, its funds from operations (FFO, an important REIT profitability metric) grew 9.6%, and the company upgraded its full-year guidance for revenues and FFO. That FFO funds a substantial 4.5% yield on a dividend that has been growing regularly for years.

Ryman Hospitality Chairman and CEO Colin Reed argues that Ryman’s advance bookings and contract structures make it less volatile than other lodging REITs. He put his money where his mouth is in early August with some insider trading. Namely, he bought roughly 13,600 shares of RHP stock worth $1.1 million in early August – the largest purchase by a Ryman insider in a year.

AbbVie

MARKET VALUE: $106.6 billion

NOTABLE RECENT INSIDER PURCHASES: $10.4 million

AbbVie (ABBV, $72.13) is a leading pharmaceutical company. It’s best-known for blockbuster drug Humira, an arthritis treatment and the world’s top-selling prescription drug. Humira accounted for $19.1 billion in 2018 –nearly 60% of AbbVie’s sales that year – but faces increasing competition from lower-priced biosimilars already available in Europe and coming to U.S. markets in 2023.

The company is addressing this this challenge by expanding its product pipeline, as well as through mergers and acquisitions (M&A). In June, AbbVie announced its largest deal ever, agreeing to pay a 45% premium to acquire Allergan (AGN) for $63 billion, or $188 per share.

The Allergan acquisition makes AbbVie the market leader in the $8 billion Botox market and gives the company an ophthalmic drug product line that includes popular names such as Restasis. Allergan also should provide AbbVie with additional cash flow to fund research and asset purchases. The deal, scheduled to close in early 2020, is also expected to create $2 billion in annual pre-tax synergies and cost reductions for AbbVie over the next three years.

Interestingly, some analysts took a negative view of the acquisition, and ABBV hit a 52-week low, though it has since recovered, descended to even lower lows, and recovered yet again. Piper Jaffray analyst Christopher Raymond was blunt, quipping that “two turkeys don’t make an eagle.” Leerink Partners analyst Geoff Porges criticized AbbVie’s pipeline soon after the deal announcement, but he actually upgraded the stock to Outperform (equivalent of Buy) on July 2, saying “While we are not necessarily fans of consolidation for its own sake, we see AbbVie bringing discipline and decisiveness to Allergan’s portfolio.”

Since the deal’s announcement, ABBV has been flooded with inside buying. Chief Strategy Officer Henry Gosebruch bought 30,000 shares worth $2 million, Director Roxanne Austin purchased 76,500 shares worth $5.1 million; Jeffrey Stewart, SVP of U.S. Commercial Operations, bought 15,552 shares worth $1 million, Nicholas Donoghoe, SVP of Enterprise Innovcation, snapped up 7,525 shares worth almost $500,000, and Vice Chairman Laura Schumacher acquired 25,000 shares at $1.8 million.

Athenex



MARKET VALUE
: $957.7 million

NOTABLE RECENT INSIDER PURCHASES: $13.2 million

Athenex (ATNX, $12.39) is a biopharmaceutical company developing new treatments for cancer. The company focuses on developing oral versions of existing cancer drugs that must currently be administered intravenously. Athenex has several drugs in its pipeline, including two in late-stage clinical studies.

Recently released results from the company’s Phase III trial of oral paclitaxel showed the new drug produced a better overall response rate in breast cancer patients than intravenous paclitaxel. It also was associated with fewer treatment-related adverse events.

However, not all the study data was positive. Patients treated with oral Paclitaxel experienced a higher incidence of infection, neutropenia and gastrointestinal side effects than patients treated with the IV drug. These concerns triggered a 30% decline in ATNX’s share price after the study results were published.

Athenex still plans to file a New Drug Application (NDA) with the U.S. FDA over the next few months. The company recently raised $100 million through a private equity placement that will fund infrastructure investments in manufacturing and marketing the new drug.

The company also announced second-quarter results in mid-August, which included a 92% jump in revenues and a narrower net loss of 44 cents per share (from 58 cents a year earlier). Athenex received a $20 million milestone payment from a development partner that will be recognized as revenues in the second half of 2019.

Billionaire hedge fund manager and biotech specialist Joe Edelman is a “beneficial owner” of ATNX, which means he owns at least 10% of at least one class of stock. Edelman has signaled his confidence over the past couple months with several spurts of heavy insider buying. His Perceptive Advisors hedge fund acquired more than 810,000 shares of ANTX stock worth $11.8 million of ATNX stock in early August, then another 100,000 worth $1.4 million in September, to bring his stake to 10.7 million shares, or 13.9%.

The important thing to remember with smaller biotechnology companies is that even keeping the lights on isn’t a given until marketed products scale up. With $165.9 million of cash and investments on hand, Athenex believes it has sufficient funds to finance its operations through the first nine months of 2020. But that only takes investors up until roughly a year from now – more needs to happen for ATNX, which went public in July 2017, to be financially viable long-term.

VTV Therapeutics

MARKET VALUE: $83.7 million

NOTABLE RECENT INSIDER PURCHASES: $7.3 million

VTV Therapeutics (VTVT, $1.43) is a tiny biotechnology company that develops orally administered treatments for diabetes, chronic pulmonary obstruction disorder, Alzheimer’s disease and other chronic illnesses. The company has seven drug candidates in its pipeline in early-stage Phase I or Phase II clinical trials – in other words, it has no marketed products.

VTV’s lead drug candidate, azeliragon, has shown promise as a treatment for early-stage Alzheimer’s disease patients who also suffer from type 2 diabetes. The company anticipates publishing results from Phase II trials of azeliragon in late 2020. Another pipeline candidate, Simplici-T, has potential as a treatment for Type 1 diabetes. Simplici-T generated positive results in the first leg of its Phase II clinical trials; VTV plans to report second leg results in early 2020.

Billionaire biotech investor Ron Perelman is a beneficial owner of VTVT shares, via his MacAndrews & Forbes investment group. M&F has been steadily accumulating stock – not by making direct purchases, but by making use of an agreement empowering M&F to exercise options to purchase shares. In August, he accumulated 1.4 million shares worth roughly $2.3 million, then in September, he acquired another 3.2 million shares worth about $5 million. He now owns a roughly 80% stake across the company’s publicly traded A shares and private B shares.

But this might be a stock best avoided. Shares have lost roughly 90% of their value since the company’s August 2015 IPO, thanks in part to a failed Phase III trial for azeliragon in April 2018, which forced the company to end clinical trials for the drug at the time.

Meanwhile, VTV generated June-quarter revenues of $1.8 million, mainly from milestone payments, but spent $6.6 million on operations, resulting in a $2.9 million net loss. Cash dwindled from $5.0 million last quarter to less than $1.5 million. Thus, VTV will need to raise additional capital to fund ongoing clinical trials.

USA Technologies

MARKET VALUE: $413.4 million

NOTABLE RECENT INSIDER PURCHASES: $15.8 million

USA Technologies (USATP, $24.35) is another stock with heavy insider trading that might be too risky for most buy-and-hold investors.

USA Technologies provides cashless payment processing and related services for small ticket, POS (Point-of-Sales) transactions. The company mainly serves clients in the beverage and food vending industries, though it plans to expand into additional segments, including commercial laundry, amusement arcades and kiosks. At present, USA Technologies has nearly 1 million POS connections to its services and customers across the U.S. Canada, Mexico and Australia.

USA Technologies believes it has penetrated just 7% of its addressable payment processing market, which the company estimates at 13 million to 15 million POS connections. Partnerships with Visa (V), Mastercard (MA), JPMorgan Chase (JPM) and Verizon (VZ), among others, present huge growth opportunities across its existing customer base.

Between 2011 and late 2018, USA Technologies grew sales 29% annually and transaction volume expanded at a 38% yearly rate. High recurring revenues (approximately 75% of revenues are recurring licensing and processing fees) contributed to double-digit sales growth.

Where things get messy is the company’s inability to meet SEC filing deadlines. USA Technologies has not yet filed its 2018 annual report or 2019 quarterly reports. The company has faced multiple delisting warnings (and received several extensions) until it received notice Sept. 24 that it would be delisted from the Nasdaq on Sept. 26. It was. USA Technologies now trades “over-the-counter,” which means it’s no longer required to post regular financial updates – an important protection measure that keeps current and would-be investors informed.

Interestingly enough, beneficial owner Doug Braunstein, through his Hudson Executive Capital LP investment firm, continued to buy through the catastrophe. Hudson took a 12% stake in USA Technologies in May, at roughly $5.45 per share, calling the stock “undervalued and an attractive investment.” He acquired more than 1 million shares worth $6.9 million in August. The company was granted an extension Sept. 9 with a deadline of Sept. 23. Braunstein still accumulated another 1.9 million shares worth $8.9 million between Sept. 23-26.

USA Technologies said it will try to regain compliance and its Nasdaq listing “as soon as practicable.” But whether it will is unknown, making it exceedingly risky to follow in the footsteps of Braunstein’s insider buying.

Author: Lisa Springer

Source: Kiplinger: 10 Insider Trading Stocks: What Execs and Directors Are Buying

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