These three high-yielding stocks offer compelling yields for smart investors.
Dividend-paying stocks offer the best of both worlds: regular and recurring income, plus the opportunity for capital gains over time. Historical studies show that, over long periods of time, investors who buy high-yielding stocks tend to outperform those who buy the market’s lowest-yielding stocks, adding to the case for investing in a diversified portfolio of dividend stocks.
Below, three Fools lay out the case for buying Nucor Corporation (NYSE:NUE), Oaktree Capital Group (NYSE:OAK), and Union Pacific Corp. (NYSE:UNP) for high yields that offer the potential to grow over time.
A bargain price for a dividend stalwart
Jason Hall (Nucor Corporation): Few steelmakers are even worth considering as long-term investments, and only Nucor has a proven track record of decades-long dividend growth, having increased its base dividend every year since 1973. While the increases in recent years have been modest, Nucor is an excellent dividend stock to buy today.
Nucor’s earnings for the first half of the year are the highest they’ve been in eight years, while the market has pushed shares down 13% from the 2017 high. Why is the market selling Nucor? In short, because of fears that imports will continue to take market share from domestic producers and drive down prices.
While there is some risk of this happening — Nucor CEO John Ferriola said after the most recent earnings report that imports were spiking again after falling for the past year. Nucor has proven capable of navigating almost any environment profitably. Furthermore, the Trump Administration has made it clear that it will continue efforts of the Obama administration to combat the dumping of illegally subsidized foreign steel, which has harmed American steelmakers.
Lastly, Nucor is cheap, trading for less than 16 times trailing earnings and 14 times forward earnings. It has been nearly a decade since Nucor shares consistently traded so cheaply. And Nucor today is a bigger, more capable steelmaker than it was a decade ago.
As steel demand continues to remain strong and even grow, Nucor is well-positioned to profit. Add a 2.7% yield on a dividend that gets increased yearly like clockwork, and shrewd investors looking for value could do well to buy Nucor.
A high yield that adds diversity to your portfolio
Jordan Wathen (Oaktree Capital Group): It’s my view that shrewd investors should look to dividend-paying companies whose prospects look better as the markets turn for the worse. Few companies exemplify this trait quite like Oaktree Capital Group (NYSE:OAK), a distressed-debt investment manager that has roughly $21.5 billion of client capital on standby, waiting for an opportunity to pick up investments at depressed prices.
Oaktree is more than just a distressed debt manager. It also owns a valuable stake in DoubleLine, a premier bond-fund manager, in addition to its own open-end and closed-end funds for smaller investors. Importantly, unlike many other alternative-asset managers, Oaktree is a lean operator and produces profits from management fees alone. Incentive fees earned for good performance are merely the icing on the cake. That stability is important, particularly in markets like we have today, where opportunities to put capital to work in attractive investments are few and far between.
Shares yield about 7% based on distributions declared over the last 12 months. Investors have visibility into the company’s ability to pay large dividends going forward. Oaktree has “accrued incentive fees” tallying to $5.55 per share. The company has earned these accrued fees and will receive them in cash as its funds liquidate their winning investments and pay cash fees to Oaktree for good performance, fueling its future cash payouts.
There are few high-yielding stocks whose prospects get better as stock prices drop. For this reason, I think Oaktree is an attractive stock to add to any income portfolio.