Investors are thirsting for income to compensate for declining stock values. Those of you with more than five years until retirement might be tempted to find the best high-yield retirement stocks to plump up your nest egg and call it a day.
Of course, everyone’s version of what constitutes high yield is different. The current dividend yield of the S&P 500 is 1.62%. Some might consider double that to be the criterion for high yield. For the sake of this article, I’m going to use 5%.
A quick screen of U.S.-listed stocks shows that 1,172 meet this standard. To weed out some of the companies, I’ll look for companies expected to grow their annual dividend per share by 10% over the next two years. That brings the number down to 61, a more manageable number. I’ll then pick those companies who’ve repurchased shares in recent years. This leaves me with 38 choices.
Here are my seven best high-yield retirement stocks to buy. Like all of my galleries, I’ll also try to provide sector diversification.
|MC||Moelis & Company||$42.71|
|GNK||Genco Shipping and Trading||$19.10|
Cogent Communications (CCOI)
Cogent Communications (NASDAQ:CCOI) is a Washington D.C.-based internet service provider. It currently provides internet access for corporate use and netcentric system of systems. It operates in more than 216 markets in 50 countries.
A big market for the company is multi-tenant residential buildings. The potential market is more than 93,000 multi-tenant residential buildings in North America. Its Q1 2022 presentation showed that it has 45,393 corporate customers and 49,491 netcentric customers. Its revenue in the first quarter was $149.2 million, 2.9% higher than a year earlier, excluding currency.
When the company announced its Q1 2022 results at the end of April, it increased its quarterly dividend by 12.8% annually to 88 cents. That was the company’s 39th consecutive quarterly increase of its dividend. Since its initial public offering in 2006, it’s returned more than $1 billion to shareholders for dividends and share repurchases.
Cogent’s annual payment of $3.52 yields 5.7%.
Diamondback Energy (FANG)
When you enter Diamondback Energy’s (NASDAQ:FANG) stock symbol into Google Finance, you see that its dividend yield is 2.5% — half of the criterion I’d set for qualification. However, that would be the base dividend. The Permian Basin operator also pays a variable dividend.
Its June 21 announcement about its capital return program announced it would increase the quarterly base dividend by five cents to 75 cents, or $3 annually. So, the base dividend was increased by 7.1%. Its second-quarter base-plus-variable payout is $3.05 a share — 75 cents for the base and $2.30 for variable — yielding 11.3%.
However, starting in the third quarter, it plans to return 75% of its quarterly free cash flow to shareholders, up from 50%. It will use its base dividend as its primary way to return capital to shareholders with secondary mechanisms, including variable dividends and share repurchases.
In the second quarter, it repurchased $253 million of its stock. It currently has approximately $1.3 billion left on its September 2021 share repurchase authorization.
With the company’s change to 75% of free cash flow, it has one of the best shareholder payouts in the energy industry.
Moelis & Company (MC)
Moelis & Company (NYSE:MC) stock has lost more than 32% of its value in 2022. As a result, the global investment bank’s stock is yielding a juicy 5.8%.
The investment bank reported Q1 2022 results at the end of April, including a 13% increase in adjusted net revenue to $298.2 million with adjusted net income per share of 95 cents, 7% lower than Q1 2021. It finished the quarter with $301.5 million in cash and no debt on its balance sheet.
Moelis last increased its quarterly dividend by five cents to 60 cents a share with the September 2021 payment. However, it also paid out two special dividends in 2021: one in June ($2) and another in November ($2.50). If it were to pay out all of the dividends it paid out in 2021 again in 2022, it would currently yield 17.2%.
How cheap is MC stock right now? Its trailing-12-month free cash flow is $672.1 million, good for an FCF yield of 26%. Now, it probably can’t keep this pace up. In 2021, it generated almost $1 billion in free cash, but even at half that, we’re still talking about an FCF yield higher than 19%.
With no debt, it’s an asset-light no-brainer.
Genco Shipping & Trading (GNK)
In May, it reported its Q1 2022 results. Its revenues were $136.2 million, 55.5% higher than a year earlier. Further down the income statement, its operating income increased 568% to $42.1 million. It finished the quarter with long-term debt of $189.9 million, down considerably from $238.2 million at the end of December.
It finished the first quarter with $107 million in free cash flow over the past 12 months. That’s an FCF yield of 15.4%. I consider anything over 8% to be value territory.
As the company stated in its Q1 2022 press release, most of its ships would be rented out at more than $27,500 daily. As a result of this strong cash flow, it’s been able to pay dividends for 11 straight quarters (almost three years).
Its annual dividend payment amounts to $3.16 a share, a dividend yield of 16.9%. It won’t always yield this high, but while it does, it makes sense to own some as a part of a diversified portfolio.
Himax Technologies (HIMX)
I have to admit that semiconductor stocks aren’t my cup of tea. I like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), and that’s about it. And those two caught my fancy because their CEOs are so darn good.
But Himax Technologies (NASDAQ:HIMX) recently revised its guidance lower on reduced tech spending, sending its stock down 20% in a week. It expects its Q2 2022 revenue to be 24.5% lower than Q1 2022, 650 basis points higher than its previous guidance. That works out to $312 million, 14.7% lower than Q2 2021.
There’s no question its business isn’t perfect — its processing chips for TVs and smartphones are very basic and commoditized — but it expects gross margins to remain the same, which suggests it still has some pricing power left despite the consumer’s uneasiness to spend right now.
By every valuation metric, HIMX stock is cheaper than it has been in more than 24 months. Plus, even though it only will pay out $1.25 per American Depositary Share (or ADS) with its July 2022 dividend, it still yields 18% because its stock’s lost 58% of its value over the past year.
Himax’s balance sheet is excellent. Its cash and equivalents as of March 31 was $378 million. It can more than handle a consumer slowdown in demand.
EPR Properties (EPR)
InvestorPlace contributor Charles Sizemore picked EPR Properties (NYSE:EPR) as his best stock for 2022. If you’re looking for a stock that got pummeled by Covid-19, the entertainment real estate investment trust is a prime candidate.
“For the two decades leading into the pandemic, dollars spent on leisure experiences rose consistently year after year with only very modest pauses during recessions. Of course, spending fell off a cliff in 2020 and has yet to fully recover,” Sizemore wrote on July 6.
“This means that EPR Properties and its experience-based tenants still have a long runway of growth in front of them.”
It sure does. I first recommended EPR in 2012.
At the time, it went by Entertainment Properties Trust. It owned many of the theaters AMC Entertainment (NYSE:AMC) leased and operated. Flash forward a decade, and it still does. AMC accounted for almost 18% of the REIT’s revenue in 2021. The second highest revenue contributor was TopGolf. The locations EPR owns generated 16.3% of its overall revenue last year. Two other cinema chains rounded out the top four.
I believe this REIT is a better investment than AMC stock. That’s especially true if you’re interested in dividend-paying investments. EPR yields 6.3%. AMC doesn’t pay one at all.
I agree with my colleague. EPR is ready to take off.
PetMed Express (PETS)
As a pet owner and investor, I’ve followed the company’s history for a long time. Back in the early 2000s, it was an up-and-comer. BusinessWeek named it one of the Top 100 Hot Growth Companies for 2006. Unfortunately, it’s never quite lived up to its potential.
In May 2021, after 20 years as CEO, PetMed’s board let Menderes Akdag go after his employment contract expired. On Aug. 31, 2021, the company hired former Rosetta Stone President Marc Hulett as its new CEO.
In early January, Hulett made his first executive hires as part of the company’s digital transformation. Hires included a chief technology and information officer, a vice president of people, and a chief marketing officer. Most recently, Hulett hired a Petco (NASDAQ:WOOF) veteran as vice president of product management.
Hulett’s transformation plan focuses on positioning PetMeds as a broader pet health brand and not just an e-commerce provider of prescriptions. While it’s early, its Q4 2022 results showed its digital transformation is gaining traction.
However, it’s still very profitable, which enables it to pay an excellent quarterly dividend of 30 cents. The annual payment of $1.20 yields a healthy 5.6%.
Down 15% YTD, it’s a potential diamond in the rough.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.