Affordable Stocks That Pay Dividends

You made it to the final installment of my dividend stock guide. Congrats! I suppose something that might be on your mind after the last two issues: So what are the affordable stocks that pay dividends?

I’ll get to that in just a minute, but first let me go over some cautionary tips before you start jumping in:

First, if a stock’s yield is too high, say above 8–10%, be cautious.

The company is trying too hard to “buy” investors. Or maybe the entire sector is too risky.

REITs, MLPs, business development companies and yieldcos must all pay out 90% of profits in dividends, according to the law, and that forces them to keep borrowing and raising money.

In a bear market or other financial catastrophe, they may not be able to raise the cash they need to remain in business. MLP prices are affected by the price of energy even though most of them simply transport it.

Many REITs own indoor and strip shopping malls. Thanks to ecommerce, that’s a declining business. Mortgage REITs are vulnerable to changes in interest rates.

However, there are many types of REITs. Some of them invest in luxury apartments. Some of them in housing for the poor. Some rent out work space to government agencies, biotech startups and small technology firms. One owns a large number of self-storage units.

Business development companies lend money to new businesses, so they’re potentially quite profitable — but risky.

Yieldcos purchase and generate “clean” energy generated by such renewable sources as wind, solar and hydroelectric. They are a new form of business entity, so they’re still unproven. However, renewable sources of energy are undoubtedly a hot trend.

Fossil fuels probably aren’t going away for a few decades, but that’s well within our lifetimes. If solar power supplies all the energy we need, we’ll stop drilling for oil and natural gas. That means MLPs will go out of business.

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