I’m not at the point yet where I rely on income from my investments. That day is coming. For now, though, it remains years in the future.

However, that doesn’t mean that I don’t like dividend stocks; I own close to 20 of them. Most of them pay modest dividends, but some recent additions to my portfolio have been exceptions. Here’s why I just bought these three high-yield dividend stocks.

Birds of a feather
Two of these three stocks are quite similar. Both Enterprise Products Partners (EPD) and Williams Companies (WMB) are midstream energy companies that operate natural gas pipelines in North America. And they both pay juicy dividends.

I already owned some shares of Enterprise Products Partners but added significantly to my position. The stock is attractive for multiple reasons, in my view. For one thing, Enterprise has delivered an average return on invested capital (ROIC) of 12% over the last 10 years. The master limited partnership (MLP) has increased its distribution for 24 consecutive years. Its distribution currently yields 7.5%.

Williams Companies is a brand-new addition to my portfolio. The company transports and/or stores roughly one-third of U.S. natural gas production across 25 states. It has met or beat consensus earnings estimates for 28 consecutive quarters. Williams’ dividend yield of over 5.8% ranks among the top 10 highest in the S&P 500. It’s also the only member of the index right now with a dividend yield and free-cash-flow yield above 5%. The latter metric reflects the stock’s highly attractive valuation.

I like the growth opportunities for these two stocks for a simple reason: My view is that the demand for natural gas and natural gas liquids will increase over the coming years. Shifting all U.S. coal power plants to natural gas would be roughly equivalent to removing every gasoline-powered car in the country off the road. Natural gas is an affordable and reliable transitional energy source to help reduce carbon emissions.

A contrarian pick
Medical Properties Trust (MPW) might not seem like a great choice. Shares of the healthcare real estate investment trust (REIT) have plunged more than 50% over the last 12 months. Some of the company’s tenants face financial challenges, with one (Prospect Medical) filing for bankruptcy.

One of the few things attractive about Medical Properties Trust right now is its dividend yield of over 11.7%. But some investors could think this dividend is on shaky ground with the potential for the REIT to miss out on significant rent payments. The hospitals leased to Prospect make up 7.5% of Medical Properties Trust’s total assets and generated more than 10% of the company’s revenue last year.

Could the healthcare REIT be forced to cut its dividend? Maybe. But Medical Properties Trust CFO Steven Hamner noted in the recent quarterly conference call that the worst-case scenario for 2023 is adjusted funds from operations of around $1.29. That’s more than enough to cover the current dividend payout.

Importantly, Medical Properties Trust believes that it will eventually recover most of its initial investment in the Prospect properties as well as any rent deferrals after Prospect’s divestitures of several assets close. This process could take up to 18 months, but the REIT’s future isn’t as bleak as it might appear at first glance.

I think that Medical Properties Trust is a pretty good contrarian pick. The overall financial outlook for hospital operators is improving. The company remains profitable. The hospital properties it owns provide value to their communities. With 26% of Medical Properties Trust’s stock float sold short, any good news could send shares soaring.

This leading hospital REIT has weathered storms in the past. I expect it will do so again.

— Keith Speights

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Source: The Motley Fool