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3 Top Dividend Stocks to Buy Now

It's not easy to find a dividend stock with a high yield today, given that the S&P 500 Index, a proxy for the broader market, is hovering near all-time highs. But that shouldn't stop you from looking, because there are some compelling options out there. In fact, you can high-yield dividend stocks worth buying in the energy, technology, and financials spaces. Take a look at this trio of income stocks -- it's likely that at least one will find its way into your portfolio today.

1. Shifting with the times

Everyone knows that carbon fuels like oil and natural gas are dirty. The bigger problem is what to do about it, since these fuels play a vital role in the world today. In fact, despite efforts to focus more on renewable power (like solar and wind) and the electrification of transportation, international energy giant Royal Dutch Shell (NYSE: RDS-B) is pretty clear that the world still wants oil and gas. And these fuels will likely remain a key part of the power picture for decades to come. Shell, which currently offers investors a hefty 6.2% yield, plans to keep serving this demand.

Image source: Getty Images

However, the oil giant is hedging its bets. It has been buying its way into the electric space, adding everything from solar farms to electric vehicle charging stations to its portfolio, and it has plans to spend as much as $3 billion annually in this area over the next five years. The goal is to create an electric-focused business that can eventually stand toe to toe with its other energy operations. In short, it is working to provide the world with what it wants today (oil) and what it will likely want in the future (electricity).

Meanwhile, the company has a fairly strong balance sheet. At first glance you might miss this, because long-term debt makes up about 30% of Shell's capital structure. There are other companies in the industry that are more conservative with leverage. But Shell also has around $15 billion in cash in its pocket, which gives it a cushion in case of any problems. So leverage isn't nearly as big an issue as it might first appear. Now add in that hefty yield and management's efforts to pivot, slowly, toward electricity, and investors looking for yield should be pretty interested in this energy giant.

2. The age wave is (still) coming

There's a saying that demographics is destiny. And one of the biggest demographic trends today is the aging of the large baby boom generation born after World War II. Unless there's a mass extinction event, the United States (and other developed nations around the world) are graying at a rapid clip. As this generation crests into their retirement years it will increase demand for healthcare services, from doctor's visits to specialized living facilities. Healthcare-focused real estate investment trusts (REITs) like Ventas (NYSE: VTR), with a hefty 5.6% dividend yield, are positioning themselves to benefit.

The problem is that the baby boom generation isn't exactly a secret, so a lot of money has gone into the healthcare sector. That's created a glut of property in the senior housing space that's put downward pressure on prices and occupancy. Ventas recently had to tell investors that it had misread the market, posting results that disappointed Wall Street. It was projecting a pivot to growth in 2020, but has now put that upturn off for at least a year or so.

The thing is, construction in the senior housing space is low, and demand remains strong. So it appears that this is a temporary supply/demand mismatch, which the aging of the baby boomers will eventually fix.

VTR Financial Debt to Equity (Quarterly) data by YCharts

Ventas happens to be one of the largest and most diversified healthcare REITs around, with properties in medical office and research (about 30% of net operating income), hospital/health systems/acute care (15%), and senior living spaces (55%). Although it is a little out of step today, it has a long history of strong execution behind it. And while its balance sheet is a bit more levered than those of its closest peers, it isn't so far out of line that investors should be worried. The dividend coverage will likely get a little tight this year, so truly conservative investors might not want to jump in here, but Ventas looks like it will be able to muddle through this rough patch. If you can stomach some uncertainty, this high-yield healthcare REIT could easily find a place in your portfolio today.

3. Shifting technologies

Last up is the over-100-year-old technology giant International Business Machines (NYSE: IBM). Most people think apps and cellphones when they imagine technology. This is true today, but IBM predates that, starting life selling things like clocks and scales. It has successfully shifted its business to keep at the leading edge of technology for over a century, and now participates in some of the hottest areas of the tech market, including cloud computing, artificial intelligence, security, and quantum computing.

The problem is that the roughly $120 billion market cap company is a giant, and shifting direction takes time. (Also bad for its public image is that it is a business-to-business company, so individual investors don't really get to see what IBM does like they do with, say, an Amazon.com.) IBM has been selling older businesses with lower margins (like making computers) and investing in newer operations with higher margins (cloud computing, for example) for a number of years now. That's left its top line in decline, since the new businesses are still growing and the old businesses were mature. Investors haven't been pleased with the speed of IBM's shift, perhaps rightly so. At this point, however, new businesses make up around half of sales, so an inflection point could be close at hand.

IBM Financial Debt to Equity (Quarterly) data by YCharts

Notably, IBM recently bought Red Hat, a service provider in the cloud computing space. That will allow IBM to increase their engagement with customers that use its competitors' products. The downside here is that IBM paid a lot of money ($34 billion) to buy Red Hat, increasing its financial debt to equity ratio from 0.3 times in 2017 to 0.6 times in 2019. The company is well aware of the issue, and has halted stock buybacks so it can put cash to work reducing debt. It has already pared its financial debt to equity ratio down to roughly 0.5 times. This is a slow-moving situation, to be sure, but investors today can collect a hefty 4.8% yield while they wait for Big Blue to get itself back on track, like it has many times before in its long history.

A solid trio of dividend options

It's unlikely that you'll find all three of the high-yield dividend stocks here to your liking. However, each offers a compelling mix of yield and opportunity that is hard to match. If you dig into the stories at Shell, Ventas, and IBM, you will likely find at least one that sees its way onto your buy list.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Reuben Gregg Brewer owns shares of IBM and Ventas. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.


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