Investors are often told that they can safely withdraw 4% of their portfolios every year in retirement in order to fund their living expenses. This is based on the historical returns of stocks and bonds and tends to work well for most people. But to come up with the funds to withdraw, investors often have to sell off some of their assets, which leads to the questions: What investments should be sold? And when?
One way to lessen or even eliminate the need to make these often-difficult decisions is to build a portfolio filled with high-yield stocks. This way, you can live off your dividends, rather than having to sell shares.
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To help you in this regard, here are two rock-solid stocks that are currently yielding more than 4%.
Dividends at a discount
Obtaining a high yield from a great business typically requires acting in a contrarian manner. By buying when short-term-focused speculators are selling, we can scoop up shares at a discount and obtain a yield on cost that otherwise would not be possible under normal circumstances.
We have one such opportunity today with Cedar Fair (NYSE: FUN). Investors reacted to the regional amusement park operator’s recent mid-year update with panic selling. Shares sank nearly 8% on the news and now yield 6%.
Investors were likely put off by a 2% decline in revenue driven by a 3% decrease in attendance. Yet this was partially offset by a 3% increase Cedar Fair’s out-of-park revenue and a slight boost in average in-park per capita spending. Moreover, the midpoint of the company’s guidance calls for full-year revenue to rise 3% to $1.36 billion and adjusted EBITDA to increase 1% to $485 million.
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Cedar Fair has a slate of new roller-coaster rides debuting this year. It’s also increasing hotel capacity, adding more dining venues, and boosting its entertainment offerings at several of its resorts. Together, this should drive revenue higher in the second half of 2018.
Looking even further ahead, Cedar Fair owns an additional 1,400 acres of undeveloped land adjacent to its parks — a valuable asset base that it can use to expand its long-term earnings power.
Most importantly, Cedar Fair remains well positioned to crank out steadily rising dividend payments for investors. Its master limited partnership structure allows for the tax-efficient return of capital to its unitholders, and management is committed to raising Cedar Fair’s dividend distribution by 4% annually.
Investors who buy Cedar Fair units today will receive a 6% yield that’s likely to grow faster than inflation in the years ahead. And at an enterprise value-to-EBITDA ratio of only 11, Cedar Fair units are currently trading for a bargain price. Investors can therefore expect to enjoy solid capital appreciation — in addition to robust dividend income — as Cedar Fair executes its long-term growth plans.
Infrastructure-powered dividends
While Cedar Fair is expanding its parks and resorts, Brookfield Infrastructure Partners L.P. (NYSE: BIP) is helping to build out the world’s transportation, communication, energy, utility, and sustainable resource networks.
As one of the largest infrastructure companies in the world, Brookfield possesses a vast collection of high-quality assets spanning five continents. It owns and operates toll roads, railroads, ports, cell towers, pipelines, electricity distribution lines, and timberlands — as well as a host of other valuable properties that deliver essential goods and services.
In addition, many of Brookfield’s businesses operate under regulated or contractual frameworks that help to shield their profits from competition. Its industry and geographic diversity also limit its exposure to sector and geopolitical risk. In turn, Brookfield is able to generate reliable cash flow that it passes on to its investors via a steadily rising dividend stream.
Going forward, Brookfield’s long-term goal is to deliver annual distribution growth of 5% to 9%. Massive expansion opportunities in water, data, and smart city infrastructure combined with steady development in its core markets should allow Brookfield to achieve — and possibly exceed — this level of dividend growth.
Better still, Brookfield’s shares now trade for less than 13 times funds from operations and yield 4.7%. Thus, investors have a chance to acquire a greater-than-4% yield from a relatively low-risk, competitively advantaged business that’s set to grow at a healthy rate for many years to come. That’s an opportunity you may not want to pass up.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
