The S&P 500 is up 4% year-to-date and its average dividend yield is less than 2%. This time last year, the S&P 500 was up 17%. Investors should not have to settle for mediocre performance. By investing in cash machines, investors can help smooth out that lumpy performance.
One of the most respected investors in the market, Howard Marks, noted in his latest memo to investors:
“In order to be a superior investor, you need the strength to diverge from the herd, stand by your convictions, and maintain positions until events prove them right.”
Investors that are frustrated with the underperformance of big name stocks have to start thinking outside of the box. The likes of Wal-Mart and Cisco have underperformed the broader market for several years. The dividend yields on these stocks have done little to mitigate the sting of that underperformance, serving as a consolation prize at best.
For investors looking for something better than subpar dividends and just “okay” stock performance, we have done the heavy lifting. We have found the top five stocks with 6% yields, and they are nothing like Wal-Mart or Cisco. Rather, they are MLPs (master limited partnership), asset managers and REITs (real estate investment trusts).
Asset managers are finding new ways to make money for investors, from distressed debt to activism. Meanwhile, oil and gas MLPs are capitalizing on the boom in America’s push for energy independence. REITs are great ways to get exposure to unique real estate holdings.
Outlined below are five of the market’s best investments that are yielding over 6%. These five stocks not only offer a dividend that is triple the average S&P 500 yield, but they are all unique investments. They give investors exposure to parts of the market they cannot get from well-known stocks.
Cash Machines #1 – #3: A Tale of Three Asset Managers
Some asset managers have a big problem today: interest rate risk. If interest rates rise, the value of their securities goes down. However, a select few asset managers have proven successful at navigating the current interest rate environment.
One of those is KKR & Co. L.P. (NYSE: KKR). KKR is one of the best asset managers around when it comes to succeeding regardless of the interest rate environment. Three quarters of its investments are in floating rate assets, so the yields’ on its assets will increase as rates rise. Meanwhile, a large part of its debt is fixed rate, which also a positive is if rates rise.
The stock pays a very healthy 7.5% dividend yield and trades at a P/E of only 8.4 based on next year’s earnings estimates.
Oaktree Capital Group (NYSE:OAK) is another major asset manager. It pays the highest dividend yield of these 5 cash machines, coming in at 7.8%. Legendary investor Howard Marks is the chairman of Oaktree. Shares of Oaktree are down 14% year to date, but the company is still generating high levels of cash and seeing its portfolio value appreciate. Oaktree focuses on alternative credit investing and distressed debt. Oaktree is one of the best ways to invest in distressed debt without actually owning it. Investors can let Howard Marks do the work for them when it comes to finding the top distressed investments.
Both KKR and Oaktree trade with P/E ratios of at or below 10, making them two of the cheapest stocks in the asset management industry.
The third asset manager is Icahn Enterprises (NYSE: IEP). My colleague Ian Wyatt recently profiled Icahn Enterprises, which is ran by one of the best minds on Wall Street. Billionaire Carl Icahn has made billions of dollars as an activist investor. But after speculation of insider trading between him and pro golfer Phil Mickelson, shares have tumbled 5%. Its dividend yield is now up to 6.1%.
Icahn Enterprises trades at a P/E of only 7.4, making it the cheapest of the three asset managers. It invests in Icahn’s hedge fund, as well as Federal-Mogul and CVR Energy. CVR is an oil refiner, while Federal-Mogul is an auto parts company. Icahn’s hedge fund has big investments in Apple and eBay. He is worth over $20 billion, so he much be doing something right.
Cash Machine #4: A New REIT in Advertising
Lamar Advertising (NASDAQ: LAMR) is unique investment, and a new play on real estate. Its business is focused on billboard advertising. However, it is also innovating the industry with digital billboards to help increase revenues. In April, Lamar got the green light from the IRS to convert to a REIT. That has several tax advantages, and means the company will now return at least 90% of its taxable income to shareholders in the form of a dividend.
Lamar Advertising has alrady announced a $0.83 quarterly dividend as part of its plan to start returning cash to shareholders. Assuming it continues its $0.83 quarter dividend, the company will be paying a dividend yield of 6.7% yield.
Cash Machine #5: The Best MLP Yielding Nearly 7%
Williams Partners (NYSE: WPZ) pays a 6.8% distribution yield, meaning it just barely missed our list of 3 best MLPs yielding 7%. However, it is one of the best plays on the transport and storage of natural gas and oil.
Williams Partners has grown its distributions at an annualized 7% over the last five years. Its current yield is above its five-year average of 6.2%. Now looks to be a great time to get into one of the best high-yield MLPs around.
Investors can still find high yields with the cash machines listed above. They come in all shapes and sizes, and can be found in a number of places. This includes asset managers, MLPs and REITs. These five stocks all yield over 6% and are great places to start earning high yields from your investments.
Ian Wyatt has found 3 stocks that pay dividends so big — you can retire on them. The Wall Street Journal calls them, “mega-dividends.” These stocks have a history of consistently RAISING their dividends… quarter after quarter. In fact, one of these cash-cranking companies hiked its dividend 10-fold! So, if these ever-increasing payouts sound good to you… Click here for all the details.