If you’re on the hunt for high-yielding stocks amidst a soaring S&P 500 Index, it’s essential to navigate the associated risks effectively. High yields often come with higher risks, and it’s critical for income-focused investors to assess whether these risks are justifiable.
AGNC Investment: Tread Carefully
AGNC Investment (NASDAQ: AGNC) stands out with its nearly 14% dividend yield. However, it poses significant risks for income investors, particularly those who rely on dividends for living expenses rather than reinvesting them. While AGNC has enjoyed a solid total return since its IPO, this includes periods of volatile market conditions and fluctuating dividends. The reality is that, over time, both the stock price and dividends have shown a noticeable decline, suggesting that relying on AGNC for consistent income could be precarious.
Understanding Dividend Cuts
Not all dividend cuts spell doom for an investment, and there are promising alternatives worth considering. Take, for instance, EPR Properties (NYSE: EPR) and W.P. Carey (NYSE: WPC), both of which reduced their dividends in response to market pressures but are now poised for recovery. EPR Properties reduced its dividends during the pandemic when its experiential venues, such as casinos and theaters, faced unprecedented shutdowns caused by social distancing measures.
A Promising Recovery for W.P. Carey
W.P. Carey made a strategic decision to exit the office sector temporarily, which contributed to its dividend reduction at the beginning of 2024. However, the company has demonstrated resilience, quickly reinstating dividend growth shortly after the cut. Currently, it boasts a return of about 5.8%, backed by a robust portfolio and ample liquidity for future acquisitions, indicating that its dividend stability is likely to improve.
EPR Properties: A Resilient Choice
EPR Properties’ focus on entertainment venues has faced challenges, but it shows signs of a strong recovery, particularly as its rental coverage ratio has improved significantly. With a payout ratio of around 72%, EPR’s dividends have seen three increases since the pandemic-led reduction. Investing in EPR could yield a rewarding 7.1% return, making it an appealing option for income-focused investors looking for recovery stories.
Focus on Risk Management
Every investment involves a degree of risk, whether through direct stock purchases or by holding cash that limits potential growth. The key for income investors is to strike a balance between risk and reward, ensuring peace of mind with their choices. While AGNC presents considerable risk regarding dividend sustainability, both W.P. Carey and EPR Properties offer more attractive risk profiles. These companies, having weathered past challenges, are now in positions to potentially increase dividends further.
Seizing Dividend Opportunities
As market sentiments shift, long-term dividend investors might find attractive opportunities in W.P. Carey and EPR Properties, both returning to a growth trajectory after overcoming significant hurdles. While the stocks carry some risk, their dividend growth may provide worthwhile rewards for patient investors.
If you’ve often felt hesitant about entering the market, now might be the perfect opportunity to consider these stocks before their broader appeal drives up valuations.
In the end, making informed decisions around high-yield investments requires due diligence on individual companies and understanding the marketplace’s dynamics. By prioritizing stocks with sound dividend histories and growth prospects, investors can build a resilient portfolio capable of delivering consistent returns over time.