5 Best Dividend Stocks to Buy in 2019 [6%+ Dividend Yields]


I’ve found the five best dividend stocks
for 2019 and they’re not technically dividend stocks. I’m going to reveal these five stock picks
along with two types of investments everyone needs in their portfolio. In fact, I have a retirement fund that’s
exclusively invested in one of these and earn double-digit returns every year. We’re talking dividend investing today on
Let’s Talk Money. Beat debt. Make Money. Make your money work for you. Creating the financial future you deserve. Let’s talk money. Joseph Hogue with the Let’s Talk Money channel
here on YouTube. I want to send a special shout out to everyone
in the community, thank you for taking a little of your time to be here today. If you’re not part of the community yet,
just click that little red subscribe button. It’s free and you’ll never miss an episode. I love dividend stocks and we’ve had a few
really popular dividend investing videos here on the channel but there are two huge cash
flow investments that people sometimes overlook. These two investments trade like dividend
stocks but are a special type of company. We’re talking about master limited partnerships
(MLPs) and real estate investment trusts or REITs. Not only are these two of the best cash flow
investments you can make but it’s a great way to protect your money from ordinary stocks. In this video, I’ll explain why these two
types of stocks aren’t dividend stocks. I’ll reveal the danger in treating them
like other stocks and why they should be part of everyone’s portfolio. I’ll then share the five best investments
in MLPs and REITs you can make this year . First, there are two very important differences
between these two types of stocks and other dividend stocks that you must know about. First is that they are pass-through companies
which means they pass profits through to investors and taxes are treated differently. These companies and their investors get special
tax breaks because of the way they handle cash flow and profits. Second, and this is the one that most investors
miss, is that these companies can’t be valued like other dividend stocks. These companies own assets like real estate
and pipelines that mean a huge amount of depreciation on the income statement. They take that depreciation off their earnings
to lower taxes but it also means that earnings are a terrible view of profitability for the
business. So if you ever hear anyone talking about the
price-to-earnings ratio of an MLP or a REIT, they don’t know what they’re talking about. You can’t use the P/E ratio with these stocks. There is a special way to value each of these
types of stocks and I’ll show you how to do that for each. On to these special types of dividend investments
though. First, let’s look at the master limited
partnership. MLPs are a company set up to own energy assets,
usually oil or natural gas pipelines and storage facilities. MLPs get a fee from energy companies for letting
them use those pipelines and storage. This is one of the benefits to MLP investing
is that profits don’t necessarily depend on the price of oil. The stock price is going to bounce around
a little if the price of oil jumps or crashes but the company is still collecting those
fees on the volume of oil pumped through the pipelines . Compared to an oil company where
sales are directly affected by the price of oil, MLPs are a little safer here because
of those fees. Since MLPs pass their income and expenses
on to investors through special reporting, the company doesn’t pay taxes. That’s a very efficient way to hold the
assets and it’s why many oil companies have sold off their pipelines into an MLP company. With MLPs you don’t get that double taxes
problem you get with regular companies where the company pays taxes on profits first then
investors pay taxes again on any returns. Another benefit to MLPs is that the cash return
you receive isn’t all taxed in the same year either. Some of those dividends count to lower your
cost in the shares so you don’t pay taxes on them until you sell the stock . And if
you pass these through to your heirs in an estate, taxes are never paid on that portion
of the return. Because they pass almost all the income on
to investors, MLPs have some of the highest cash return of any types of stocks. The dividend on the Alerian MLP ETF, a fund
that holds shares of MLPs, pays an 8.4% annual dividend yield. There is one downside to MLPs I want to point
out before getting to how to value these stocks and my two favorite MLP picks. MLP investors get a K-1 form, a special tax
form each year, from the company that details the return. This means a little more work at tax time
to report the investment but any online tax software makes it easy to file taxes on these. Now on to how to value an MLP. Remember, you can’t use the price-to-earnings
ratio here. These companies have a huge amount of depreciation
that makes earnings misleading but it doesn’t affect actual cash flow. So what we’re going to do is use what’s
called price-to-distributable cash flow or price-to-DCF. Finding this value for distributable cash
flow, the amount of money the company has available to return to investors, is important
also because it gives us an idea of sustainability. A company can’t pay out more than is available
forever so it’s a good metric to make sure that dividend isn’t going to be cut any
time soon. I’ll show you how to calculate DCF yourself
but all MLPs will calculate it on their reporting. I do it myself only because I like to double-check
the numbers coming out of the company and make sure I’m comparing stocks with the
same calculation. Here’s the table, and again don’t get
freaked out because this is always provided to you in reporting. To find how much money the company has available
to distribute, you take the cash flow from operations, this is all going to be found
on the Statement of Cash Flows, and you remove any spending on capital and income from non-controlling
interests. That gives you sustainable DCF which is what
the company can return to investors and still keep operations running smoothly. While sustainable DCF is a better measure,
most people use the DCF as reported because it’s sometimes the only number reported. To get to DCF, you also add back that income
from non-controlling interests as well as working capital reported. The big one here is adding back this proceeds
from asset sales. This is technically proceeds the company can
return to investors, a company can’t forever be selling its assets and still keep business
running so that’s why we use that sustainable DCF if it’s available. With this number, you can find that valuation
with the price-to-DCF or you can find how much the company is returning to investors
for what’s called the distribution coverage ratio. This is how much DCF the company earns versus
how much it pays out. This last measure is important because an
MLP that pays out more than it’s Distributable Cash Flow can’t do so forever. You see here the coverage ratio for a group
of MLPs and that the average is around a DCF that’s 1.2 times the distribution. This means the company has cash flow about
20% higher than what it’s returning but you also see some companies here that save
back more or much less. Now on to my two favorite MLP picks for 2019. DCP Midstream, ticker DCP, is an integrated
MLP which means it owns energy assets throughout the supply chain from pipelines to processing
plants and storage. This gives it better pricing power and more
control negotiating with energy companies. DCP hedges most of it’s exposure to natural
gas prices and 80% of its revenue is that fee-based so it’s not going to be as volatile
as even other MLPs. The company pays an 8.6% dividend and a 1.35-times
distribution coverage which means that dividend is relatively safe. Pipeline volume increased 35% in the third
quarter versus last year so cash flow is on a good trend and shares trade for about 8-times
DCF. Our next MLP pick here is Energy Transfer
or ticker ET. ET is a little more diverse than DCP both geographically and by assets. The company owns natural gas pipelines through
several regions as well as some oil pipeline and export facilities. Energy Transfer has one of the best project
backlog profiles I’ve seen in MLPs meaning it has a lot of projects lined up for growth. Cash flow jumped 40% year-over-year in the
second quarter so this is a company growing fast. The 8.2% dividend yield is covered by about
1.2-times DCF and shares trade for about 8.8-times DCF. One last note about MLPs here is that you
shouldn’t own them in a retirement or tax-advantaged account. The profits here are already taxed-advantaged
so you lose that benefit if you hold them in an IRA or Roth IRA. Our next dividend stock investment here is
real estate investment trusts or REITs and these are my favorite of the two. Those of you in the community know I’m a
big believer in real estate and I love REITs because they give everyone the opportunity
to get into property investing but without that big down payment needed. We’ve got another video on the channel detailing
the seven property strategies I used after getting out of the Marine Corps to get started
with no money. I’ll leave a link to that in the video description
below but the fact is that direct property investing can still be a lot of time and work. So REITs are special companies set up to manage
commercial real estate and pay out the cash flow to investors. REITs can specialize in a property type so
apartments, office, retail, warehouse and self-storage or they can hold a mix of properties. Most REITs hold properties across the country
so it’s a great way to diversify your portfolio of individual properties, getting exposure
to other regions and property types. REITs pay no corporate taxes as long as they
pay out at least 90% of income to investors so like MLPs this makes for a great way to
manage property, avoid that double taxation and means huge cash dividends for investors. In contrast to MLPs, REITs can be held in
a retirement account and that’s how I invest. The dividends from a REIT are either taxed
as income or at the capital gains tax rate so you would owe taxes on these if you hold
them in a regular account. Holding them in a retirement account means
I don’t pay any taxes for decades on all that cash flow. This is a great strategy for any high-yield
investment like dividend stocks, REITs or bonds. Hold these in a retirement account so you
pay no taxes. Your other stocks where most of the return
is through those capital gains when you sell it, those you can hold in a regular investing
account. There are primarily two types of REITs, an
equity REIT which actually owns the properties and a mortgage REIT which invests in real
estate loans. Now these mortgage REITs pay higher dividends
but they tend to be more volatile, especially when interest rates are rising . I’ve invested
in mortgage REITs but prefer equity REITs as a better long-term investment. Just like with MLPs, you can’t rely on reported
earnings for a REIT because of that high amount of depreciation they get from real estate. Instead, we use a measure called Funds from
Operations or FFO. FFO is very similar to that DCF we saw with
MLPs. You take the reported net income of the REIT
and add back depreciation but minus out any gains they made on property sales. Those property sales are a source of income
but not something the REIT can do forever and expect to stay in business. Investors also look at the adjusted funds
from operations this AFFO, which takes out capital expenditures. Capex here is money the company spends to
keep its properties in good shape so maintenance spending. Remember, the idea is to find how much cash
the company has available to distribute without cutting into money it needs to run the business. Again, like the DCF calculation for MLPs,
you don’t necessarily have to do this yourself because it’s always reported by the company. It’s just a good idea to understand the
concept and be able to double-check the company’s reporting. You use FFO just like our other metric so
you can take the price of the REIT over FFO to compare the valuation to other REITs. You can also get a coverage ratio of FFO over
the dividend to see how safe the yield is for the stock. Now I’m going to share three REITs that
I own and love for strong dividend yields and price appreciation. Dividend yields are a little lower for REITs
compared to MLPs but you tend to have higher price appreciation in the shares. This is because those real estate properties
appreciate and REITs tend to hold a little more back for growth than MLPs. First here is Extra Space Storage, ticker
EXR, which owns over 1,600 storage facilities across the country . This is a great property
type because it’s very easy to manage so costs are extremely low and that means lots
of cash flow. Let’s face it, we Americans love to buy
lots of stuff we don’t have room for and that means rented storage space. Occupancy at EXR is at 93%, almost completely
full, and the percent of the population using self-storage has risen to 8%, doubling over
the last 20 years. Shares have produced a 715% total return over
the last decade, the highest among storage REITs and second-highest against all REITs. The dividend has grown 115% over the last
five years and pays a 3.6% yield. Our next REIT is Ventas or ticker VTR, a leader
in medical and senior living properties. The company is well-diversified with about
55% of net operating income from senior living facilities, nearly a fifth from medical office
space, another 7% from university-based research centers and the rest from a mix of health
centers and loans. I love the healthcare REIT space because of
that broad demographic trend and the stability in healthcare spending. The senior living space has been weak lately
on over-supply but is turning around and the boomer generation is just now aging into the
segment. Shares pay a 5.2% dividend yield and have
produced an annualized 13.5% return over the last two decades. The shares trade for about 15-times FFO on
a really strong outlook for growth. Our last REIT pick isn’t a REIT itself but
a fund that holds REITs, the Vanguard Real Estate ETF, ticker VNQ. The fund holds shares of 184 REITs across
all property types. The VNQ is the best way to get that instant
diversification for your real estate portfolio because it holds pretty much everything and
the expense fee on the fund is one of the lowest you’ll find. Shares pay a 4.4% dividend yield and have
produced a total return of 11.3% annually over the last decade. Do not neglect these two types of dividend
stocks for your portfolio. Not only do they pay dividend yields of three-
and four-times the rest of the market but they’re going to give you exposure to assets
that will smooth out risk of a crash in other stocks. Remember to value these stocks differently
with that DCF or FFO calculation and check out some of those five great dividend picks
I highlighted. We’re here Mondays, Wednesdays and Fridays
with the best videos on beating debt, making more money and making your money work for
you. If you’ve got a question about money, just
subscribe to the channel and ask it in the comments and we’ll answer it in a video.

81 Replies to “5 Best Dividend Stocks to Buy in 2019 [6%+ Dividend Yields]”

  1. Paul lost almost all $9,000 he saved for a down-payment! 😭 Don't make these mistakes investing your short-term money! https://youtu.be/ekFjAW5Eh1A

  2. Funny, second channel that talks about ET. Must be a great company with all this exposure.

    I will just warn a bit here, do your research in MLP, it might be fine for Americans, but my net yield is 4.5% not 8%. Might get money back from taxes, but it's unknown for now.

    Also ET has had a lot of issues. Just look up articles on Seeking Alpha and check the comments, you'll get the idea.

  3. Although banks are pure evil, some of them over here in Europe do pay some stable dividends.

    Great video idea, my sir!

  4. Hello Joseph, I'm just wondering why you're showing a video that was certainly recorded in November 2018 (given the date of yahoo's screenshots and the price of the shares) just out of curiosity. thanks for sharing.

  5. Hi Joseph, Do you have any thoughts on Exchange Traded Notes (ETN's) specifically those invested in REIT's at 2X leverage? (MORL & REML)

  6. Fantastic breakdown and explanation of these investment ideas.
    I love my Vangaurd account. The dividend ETF and the REIT ETF has made investing easier for me.

  7. As a lazy arse preferring others to make me money I like these kind of investments. I was not aware of MLPs or how to value REITs. Isn't depreciation a real cost since any depreciating infrastructure will need to be replaced eventually. When most assets are expensive as now I think investing for cash flow rather than capital appreciation is the way to go. This means investing with a 10 or 20 year + time horizon. Assets that are expensive can become more expensive so you may realize capital appreciation as a bonus. I remember in 1980s when a house cost 3X my earnings I thought that was expensive. That same house is now worth about 8X my current earned annual income.

  8. You do such a great job presenting your topics. Very impressive. Looking to start my own channel this year, any tips for a beginner?

  9. I JUST started investing in REITs last year. Nice to be able to add that diversification without having to plop down a big chunk of my net worth for a single piece of property.

  10. Just curious do you own all these stocks in your personal portfolio? Thanks Joseph and awesome channel by the way! 🙂

  11. This is great info! I have heard a lot about of good things about REITS. Can I get your opinion on value investing, buying companies trading below or near book value. Companies I was looking at were Ford, Citi, Honda, bank of America, and At&t. Also I am a senior accounting and Finance student.

  12. I got VNQ on my Acorns account, it paid me a $0.16 dividend last month, I got nothing bad to say about it I had VNQ for a year, plan on keeping it. I also know that you have what is called a Hybrid REIT which is both Equity and Mortgage. I just got VNQ for now which pays me a good dividend which Acorns reinvest my dividends, I plan on getting VNQ on M1 Finance soon as I get Robinhood and Stash get to $200+.

  13. I definitely agree holding REITs in a retirement account is best. Just thought I point out IRC section 199A was updated to allow a 20% deduction on qualified REIT and PTP income. There is a lot more involved in determining this calculation and if any limitations apply. But the marginal tax rate gap between qualified REIT income vs qualified corporate dividends had shrunk slightly. Then again maybe now there is more incentive to hold a REIT in a retirement account to avoid having to figure out 199A deduction altogether? A link to my source is below. Just thought I would share since this is new, not that many people have talked about this (or know this), and in case someone finds this useful. ✌
    https://www.kitces.com/blog/reit-real-estate-investments-section-199a-qbi-deduction/

  14. Pro tip: just relax and speak normally. Lower your voice to normal conversational pitch and speed. Great information you're giving but you're almost unlistenable because you sound like a used car commercial. Breathe and imagine you're taking to a friend in your living room. Your energy comes across as fake and annoying. Just chill.

  15. Joseph, I want to invest in Electric Vehicle companies. Atlis is still in the startup stage and Rivian is not yet public. Can you please tell me if it would be smart to invest in either of these companies?

  16. One comment and one question: I believe the term 'dividend' doesn't apply despite it being a common misnomer. MLP's and REIT's offer 'distributions', hence the differing treatment at tax time since they are actual income versus capital gains.

    Also, has anyone else heard that pipeline MLP distributions are subject to state-level taxation in every state through which the pipeline passes? That's a significant amount of extra expense at filing time and an added risk of liability should the filing be audited.

  17. This is NOT hard to understand. Why don’t High Schools teach this to our youth? Thank you for your explanation on MLPs & REITs.

  18. Looked up some MLP etfs because I'm not crazy about single stocks in my portfolio and not crazy about extra tax prep. They aren't doing so hot.

  19. Love the videos Joseph! Very informative and formatted efficiently. Quick question, what are your thoughts on these MLPs – Holly Energy Partners, MMP, PSXP, and EPD. They all seem to check out, but I am still pretty new in investing in MLPs so I'd appreciate your opinion. Trying to make a diversified MLP portion of my portfolio. Thanks!

  20. Great video and explanation of tax implications of MLP's. I would LOVE a video on an internationally-diversified Dividend portfolio. With the US markets at such highs, it would be great to have a Dividend ETF or ETF/stock blend that was safe for us Americans weary of buying in on a high. Thanks again.

  21. I’ve watched (and learned from) a half dozen of your videos and newly subscribed. Fellow former Marine as well. Thanks for sharing the content, Devil Dog!

  22. What are the top 5 stocks? I watched videos but I got ticker Exr,vtr and vnq. Can you tell me other are?

  23. Im in ET myself, 8.25% right now. Have enough share's that each Quarter my dividend's are reinvested and I gain another share. Kind of a moot point for me because Im 65 yrs old so its just a hobby. Going to leave it for my 10 yr old grandson when I die 🙂

  24. Is there a simple way to calculate DCF from the information provided on Yahoo finance? I wasn't sure which lines from your table correlated to the Yahoo finance's cash flow statement.

  25. Great video! Joseph
    I have a question:

    ET has payout ratio over 100%, does that mean ET is borrowing money to pay dividend?

  26. Is it best to own vanguard real estate ETF or individual REITs inside my rothira? What are the pros and cons of owning both.

  27. It was a great expaination and i love all your videos! I wish i knew all this before …never too late i guess.

  28. Whicj retirement fund you have a Roth or traditional IRA account?? And which one is better mr Joseph to have

  29. I was actually eyeballing that energy stock ET to be my next investment pick to add to my portfolio before I came across this video. Thanks for the video, this gave me more confirmation to choose it as my next investment

  30. Lots of good information, I am also investing heavily in REITs for some passive income. I'm new to investing with a portfolio of my own that I watch weekly since October 2018, now I'm hooked on it. Like an alcoholic addicted to alcohol. I also have a financial advisor where I hold other portfolio's, not a bad way to start just to get an idea how it all works for new Investors.

  31. Hi Joseph, Do you have any videos specific to retirement account? If yes please do share? I am specifically looking at what different portfolios to hold as such. Not sure if a combo of mutual funds, REITS , Stocks with high dividend would be a good bet?

  32. Hi Joseph, is REIT investment wise during recession or slow down? Or which sector at REIT will be defensive ?

  33. Great video! I don't want to sound rude, but is your intro a joke or a meme? No hating here, just wondering lol

  34. As much as I would like to place some purely in retirement, I’m hoping to build some passive income to use in certain situations when needed, so I can’t place them solely in retirement should I need it. That being said, I don’t totally mind as it’ll come in handy when I need it. Anything I don’t I’ll just reinvest back into the portfolio.

  35. Hi Joseph, I was wondering about the most recent drop in DCP Midstream. I could not find any reason for it in the reports. Do you have some insight here? Or would you rather see this as a very good investment opportunity right now.

  36. Hey Joseph! I remember watching this video a while back. Had great interest in these kinds of stocks, but never actually went about researching and buying them since I was focused more on swing and day trading. Now I've got things coming up in my life and I just won't be able to dedicate as much time to the stock market, so I figured I'd give these a better look.
    Seeing that some time has passed since you made this video, which of these do you still consider good picks?
    Also, I've been quite puzzled by DCP dropping like it did. Their financials look ok, everything is going as expected and they didn't lower their guidance. And that yield… It's almost 13% now, scary and exciting at the same time. I understand that there might be some commodity price headwinds, but does that really warrant such a drop?
    Thanks!

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