When pundits in the financial media warn that interest rates are going higher, long-time investors laugh and think back to the days before the financial crisis in 2007 when the 10-year Treasury bond had a yield over 5%. That bond now yields a paltry 1.55%, and after taxes and inflation it actually has a negative real-return yield.

So what are income-starved investors to do? One of the best ideas is to look for stocks that pay dependable dividends and have for years. We screened the BofA Securities research universe looking for companies that pay big dividends that look like they will remain safe.
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We found five that are rated Buy and make sense for investors looking to increase their income streams and have total return potential. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AT&T

This is a top telecom and entertainment play. AT&T Inc. (NYSE: T) is the largest U.S. telecom company and provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections, with 77 million postpaid subscribers.

While AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition, the company through WarnerMedia has become a diversified media and entertainment business.

In an attempt to lower its large debt load, AT&T recently agreed to sell a stake in its pay-TV unit to private-equity firm TPG and carve out the struggling business, pulling the telecom giant back from a costly wager on entertainment. The transaction would move the DirecTV and AT&T TV services in the United States into a new entity that will be run jointly by the new partners. AT&T will retain a 70% stake in the business. TPG will pay $1.8 billion in cash for a 30% stake.

Investors receive a 7.19% dividend, which looks secure. The BofA Securities price target for the shares is $36, above the $29.51 consensus target. Thursday’s closing print for AT&T stock was $28.92 a share.

This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
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Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.

The analysts are very favorable toward the company’s plans for the future:

Management presented at CAGNY (Consumer Analyst Group of New York) where it discussed a new corporate focus on ESG, additional details on its IQOS plans and its “Moving beyond smoking” 10-yr plan. Smokeables (cigarettes/cigars) will remain an important part of its strategy, providing funding behind its long-term growth and shareholder returns. Over the last 5-yrs, smokeable and other comprehensive income grew at a 5.5% compounded annual growth rate despite volume declines.

Shareholders receive a 7.77% dividend. BofA Securities has a $53 target price, also above the consensus target of $48.87. Altria stock closed on Thursday at $44.26 per share.

Enterprise Products Partners

This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.

One reason many analysts may have a liking for the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the master limited partnerships (MLPs).

The company’s distributions have grown consistently over the years, and last year it announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.45 per common unit, or $1.80 per unit on an annualized basis.

Investors in Enterprise Products Partners stock receive a 7.85% distribution. The $36 BofA Securities price target compares with the $26.54 consensus target and the closing price of $22.92 on Thursday.

This is a unique and interesting way to play the gaming subsector and generate income. Gaming and Leisure Properties Inc. (NASDAQ: GLPI) is a real estate investment trust (REIT) engaged in the business of acquiring, financing and owning real estate property to be leased to gaming operators in triple net lease arrangements. That is, the tenant is responsible for all facility maintenance, insurance required in connection with the leased properties and the business conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties.
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The company expects to continue to grow its portfolio by pursuing opportunities to acquire additional gaming facilities to lease to gaming operators. It also intends to diversify the corporate portfolio over time, including by acquiring properties outside the gaming industry to lease to third parties. The company’s current portfolio consists of 44 casinos, including two TRS properties and the real property associated with 42 facilities spread around the United States.

Last fall, the company bolstered the portfolio, and the analysts said this about the deal at the time:

The company announced the acquisition of properties from Caesars (CZR) and Twin River (TRWH) for $484 million to receive $40 million of rent. The deal is a positive as its 1) accretive, 2) a new tenant/new market, with a master lease, 3) includes a corporate guarantee.

Shareholders receive a 6.06% distribution. BofA Securities has set a $50 price target. The consensus target is $47.82, and the stock ended Thursday’s trading session at $46.73 a share.

Omega Healthcare

This company is in one of the fastest-growing subsectors of the REIT industry. Omega Healthcare Investors Inc. (NYSE: OHI) is a publicly traded, internally managed health care REIT focused on owning skilled nursing facilities. Most of its assets are such facilities, but the company also owns assisted living facilities, specialty facilities and a medical office property.

The company’s portfolio of assets is operated by a diverse group of health care companies, predominantly in a triple-net lease structure. The assets span all regions within the United States, as well as in the United Kingdom. Omega’s tenants generally have lower exposure to Medicare, which is where the funding pressures tend to remain, and less than 10% of revenues come from tenants with rent coverage below 1.0 times. In addition, the tenant base is very well diversified.

The company made a strong recent acquisition, and the analysts said this:

Omega Healthcare acquired a $510M senior housing portfolio managed by Brookdale from Healthpeak Properties in January. Our model only assumed $400M of acquisitions in 2021. We estimate initial cash yield of 8.5%

Shareholders receive a 7.21% distribution. The BofA Securities price target is $40, but the consensus target is much higher at $47.82. The shares closed most recently at $37.16.

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With five different areas of the market to choose from, all these companies pay dependable 6% or better dividends. It is important to note that both REITs and MLPs pay distributions that could result in the return of principal. With that in mind, the continued low interest rate scenario bodes well for these stocks that serve as bond proxy vehicles and, despite the small uptick in rates, they are still close to generational lows.

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