Buying and holding for the long term requires a different mindset. You aren’t investing for today; you are investing with a horizon spanning decades. Which is why you’ll want to stick with companies that have proven they know how to win in both good markets and bad ones. That’s exactly what you’ll get with high-yielders Bank of Nova Scotia(NYSE: BNS), Realty Income(NYSE: O), and Enterprise Products Partners(NYSE: EPD). Here’s a quick look at each.
Bank of Nova Scotia has not increased its dividend every single year. However, it has paid a dividend every year since 1833. That’s not a typo. This Canadian banking giant has been rewarding investors regularly for more than 150 years. The dividend yield is currently around 4.6%, more than four times higher than the yield of the S&P 500 index(SNPINDEX: ^GSPC).
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Bank of Nova Scotia, often called Scotiabank, operates in Canada, the United States, Mexico, and other parts of Central and South America. Its Canadian operations are a strong foundation because they benefit from heavy regulation that, effectively, protects Scotiabank and other large peers from competition. That same regulation has also resulted in a generally conservative business culture at the bank.
To be fair, Scotiabank has lagged its peers performance wise in recent years, but it is addressing this by reshaping its portfolio to prioritize its Mexican, U.S., and Canadian operations. Given its dividend bona fides, even conservative investors should feel comfortable owning this high-yield bank.
If you are looking for something a little more boring, Realty Income and its 5.2% yield will be a great fit for you. The high-yield real estate investment trust (REIT) has increased its monthly pay dividend for 31 consecutive years. It has an investment-grade-rated balance sheet. And its funds from operations (FFO) payout ratio is a very comfortable 75% or so.
On top of that, it is the largest net-lease REIT, with a portfolio of more than 15,500 properties. Around 79% of rents come from retail properties, which are easy to buy, sell, and release as needed. It also owns industrial assets, casinos, vineyards, and data centers. And its average remaining lease term is over 8 years, so any near-term economic downturns should be over well before Realty Income has to worry about a wave of lease renewals.
Realty Income is as close to a sleep-well-at-night dividend stock as you’ll get on Wall Street. It is the kind of dividend stock you can pass on to your descendants, helping to create generational wealth.
Enterprise Products Partners will be the toughest sell, since it operates in the energy sector. But don’t get caught up in the risks posed by the geopolitical conflict unfolding in the Middle East. Enterprise’s 5.7% distribution yield is backed by a toll-taker business. Simply put, this master limited partnership (MLP) charges fees for the use of its massive North American energy infrastructure portfolio. The volume of energy moving through its system is more important than the price of what is being moved.
That’s how Enterprise has managed to increase its distribution annually for 27 consecutive years despite operating in the highly volatile energy sector. That’s roughly as long as the MLP has been publicaly traded. It is also very conservative with its finances, maintaining an investment-grade balance sheet and distributions that are covered 1.7x by distributable cash flow. Enterprise is a boring business, but given the high yield, that’s exactly the kind of energy stock that an income investor will want to buy and hold for the long term.
Scotiabank, Realty Income, and Enterprise all have high yields. But that’s not enough to make them long-term buys. They are worth buying and holding because they have proven track records of reliably paying dividends through thick and thin, at least partly thanks to their conservative business models.
A $1,000 investment will let you buy 14 shares of Bank of Nova Scotia, 15 shares of Realty Income, or 26 units of Enterprise. And while you’ll likely find you never want to sell them, you might decide to keep adding to the positions over time.
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Reuben Gregg Brewer has positions in Bank Of Nova Scotia and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Bank Of Nova Scotia and Enterprise Products Partners. The Motley Fool has a disclosure policy.
