Interest rates may be up from the lows they hit in the middle of last year, when the novel coronavirus pandemic was raging. But with rates not too much improved from those record lows, overall stock dividend yields are correspondingly low.
Thankfully, there are some compelling exceptions to this norm. Among the best opportunities income investors may want to consider today are Iron Mountain (NYSE: IRM), ONEOK (NYSE: OKE), and Artisan Partners Asset Management (NYSE: APAM). Here's a closer look.
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Dividend yield: 6.7%
Iron Mountain's roots are curious, to say the least -- its business is based on storing paperwork for organizations that don't have room to retain those documents on site. For instance, banks are required to keep signed loan papers, but they aren't required to keep those documents right behind the counter.
The company has expanded its offerings since its 1951 inception, adding related services like document shredding and even the safe storage of artwork. It's also adapted to the digitalization of the workplace, providing document scanning services and cloud data backup, just to name a few items on its more modern menu. Not only are all of these offerings perpetually marketable, but its services are cross-marketable. That is to say, users of one of its services are likely to need another.
That's not the nuance that makes Iron Mountain such a reliable dividend name, however. The big selling feature here is the nature of the business. Organizations pay an ongoing fee to Iron Mountain for its services, which are relatively easy (read: inexpensive) to maintain once they're set up. In other words, there's time and trouble involved in bringing a load of paperwork to a warehouse where it must be shelved. Once it's on that shelf, though, the company's customers mostly pay Iron Mountain to sit on it.
There's not a ton of growth in the business, but there's lots of regular, predictable cash flow. And because Iron Mountain is structured as a real estate investment trust (REIT), it's required to pay out at least 90% of taxable income to shareholders. End result? The company hasn't failed to pay a dividend in any quarter since early 2010.
Dividend yield: 7.2%
Most investors might know crude oil and natural gas prices tanked in the first half of last year, largely on fears of a coronavirus-induced recession. What they may not realize, though, is that demand for gas and oil never actually slumped to any meaningful degree. The U.S. Energy Information Administration estimates worldwide consumption of crude only fell 9% in 2020, with much of that contraction linked to logistics hurdles rather than demand issues. The EIA further estimates U.S. consumption of natural gas fell last year as well, though only about 2%.
The data highlights an important reality of the energy market: Not all energy stocks are the same. Explorers and producers are tremendously affected by plunging hydrocarbon values, as the cost of drilling and extracting is the same regardless of the sales price of the gas and oil being extracted and delivered. The cost of delivering that gas and oil, however, holds pretty steady.
Enter ONEOK, one of the nation's leading natural gas pipeline and processing companies. It's paid by the cubic foot for gas it gathers, processes, or transports regardless of that gas's value at the time.
The business's resiliency is evident in last year's results. Despite plunging gas and crude prices, ONEOK's 2020 EBITDA was 6% better than 2019's despite the demand headwind. The company is calling for rebounding volumes this year, too.Granted, this resiliency and bright outlook didn't prompt ONEOK to up its dividend beginning with the first payout of 2020, as it usually does. That decision, however, doesn't necessarily preclude the company from doing so at a later date this year. Perhaps more important. ONEOK hasn't failed to pay a dividend in any quarter since the early '70s.
Best of all, it can afford to pay the dividends it's dishing out. While ONEOK's operating per-share earnings are historically less than than its dividend, in the capital-intensive gas pipeline business, distributable cash flow (or DCF) is a much more accurate measure of how well supported a payout is. Despite last year's challenges, the company's 2020 DCF of about $4.38 was more than enough to fund the dividend of $3.74. The same story goes for previous years.
Artisan Partners Asset Management
Dividend yield: 6.2%
Finally, have you ever heard of the Artisan family of mutual funds? You can also invest in the company that manages them, collecting a piece of the fees it collects every quarter for the assets under the company's management umbrella.
Artisan Partners' business model is quite a bit like Iron Mountain's, in that the company collects ongoing revenue for providing a modicum of service to existing customers without necessarily bringing in new ones. That's not to say Artisan doesn't strive to add new investments in its funds, nor is it to suggest investors don't close out their positions in these funds on a regular basis. Heck, even the market's ebb and flow affects the value of the investment pools the fund company bases its quarterly management fees on.
On balance, though, the corresponding cash flow is pretty steady even if absolute growth isn't. Indeed, the company hasn't failed to produce a profit in any quarter since it went public back in 2013. This has allowed the asset manager to pay a reliable, healthy dividend every quarter since then, even if the amount of the payout hasn't been completely predictable.
Artisan Partners brings something else to the table in the meantime: value. Shares are priced at a palatable 15 times earnings for the past 12 months and only 11 times the coming year's projected per-share profits. The stock is also priced 16% under analysts' current consensus target, opening the door to some price appreciation while investors collect their above-average dividends.
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