The S&P 500's Dividend Yield Is the Lowest It's Been in Over 2 Decades. Here's Where You Can Lock in Much Higher Yields.
The S&P 500 has gained an impressive 35% over the past year. Because of that, its dividend yield has fallen from 1.7% a year ago to around 1.2% these days. That’s its lowest level in more than 20 years. It’s also well below its peak of more than 4% toward the end of the 2008-2009 financial crisis.
To put that into a more tangible context, a $10,000 investment made in the S&P 500 right now would only produce about $120 of dividend income over the next year. That compares to the $170 or so that would be collected by someone who invested the same amount a year ago.
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While the yields of the S&P 500 and many of the stocks in it have dwindled to paltry levels, there are several great income stocks you can buy now that would provide much better ones.
Realty Income‘s (NYSE: O) yield at its current share price is more than 5.5%. The real estate investment trust (REIT) has paid 653 consecutive monthly dividends throughout its history. Moreover, it has raised its payouts 127 times since coming public in 1994 (including for the last 108 quarters in a row), growing them at a 4.3% compound annual rate.
The landlord generates stable rental income. It distributes about 75% of its cash flow to investors via dividends, retaining the rest to invest in new income-generating properties. Realty Income also boasts one of the strongest balance sheets among its REIT peers. Those factors put its high-yielding dividend on a firm foundation.
Realty Income should be able to continue increasing its payouts. It routinely acquires additional income-generating real estate, and is on track to invest about $3.5 billion into new properties this year. It also acquired fellow REIT Spirit Realty in a $9.3 billion deal. These investments should grow its cash flow per share by nearly 5% this year. With trillions of dollars of commercial real estate across the U.S. and Europe that it could choose from among to buy, Realty Income has a long growth runway.
Kinder Morgan‘s (NYSE: KMI) dividend yields nearly 4.5% at the current share price. The natural gas pipeline giant has increased its payouts for seven straight years.
The midstream company produces stable cash flow. Roughly 68% of its earnings are take-or-pay or hedged — meaning it gets paid its contract rate regardless of commodity prices or volumes — while another 27% is fee-based, where it gets paid a fixed rate on variable volumes.
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