Income-oriented investors have been severely hurt by the surge of inflation to a 40-year high this year. Excessive inflation erodes the real value of investment portfolios. High-dividend stocks are great candidates for the portfolios of income-oriented investors, especially in the ongoing bear market. These stocks offer a much higher yield than the S&P 500, which currently has a dividend yield of 1.7%, and make it easier for investors to wait for the next bull market to show up. In this article, we will discuss the prospects of three high-dividend stocks that are offering dividend yields in excess of 5%, namely Altria (MO), American Assets Trust (AAT) and Cousins Properties (CUZ).

Altria (MO)

Altria is a consumer staples giant. It is the producer of the top-selling cigarette brand in the world, namely Marlboro, as well as some non-smokeable products. It also has large stakes in global beer giant Anheuser Busch InBev (BUD), Juul, a vaping products manufacturer, and Cronos Group (CRON), a cannabis company.

Just like the other tobacco companies, Altria faces a secular headwind in its business, namely the steadily declining consumption of cigarettes per capita. This metric has consistently decreased for more than 35 consecutive years. However, thanks to the inelastic demand for its products, Altria has been able to raise its prices significantly year after year. As a result, it has achieved an exceptional performance record.

Altria has grown its earnings per share every single year over the last decade, at a 9.4% average annual rate. This is undoubtedly an impressive performance record, especially given the secular decline of the consumption of cigarettes. It is also a testament to the strength of the business model of Altria.

Altria is currently facing another headwind, namely the shift of the tobacco industry from traditional cigarettes to other products, such as vaping products. As the tobacco giant was caught off-guard in this transition, it acquired a 35% stake in Juul, a leader in vaping products, for $12.8 billion about four years ago. Unfortunately, the timing of the acquisition was extremely poor, as Juul has incurred several setbacks due to restrictions from regulators since then. Consequently, Altria has written-off most of its investment in Juul.

On the bright side, Altria has remained in its growth trajectory. The tobacco giant is poised to grow its earnings per share by approximately 5% this year, to a new all-time high. It is also offering a nearly 10-year high dividend yield of 9.1%. The stock has a payout ratio of 74%, which seems elevated, at least on the surface. However, it is a nearly 10-year low payout ratio for Altria, as the company has targeted a payout ratio around 80% for years thanks to its resilient business model.

Thanks to the inelastic demand for its products and its resilience to recessions, Altria is a Dividend King, with 52 consecutive years of dividend growth. Given its reasonable payout ratio and its proven ability to grow its earnings regardless of the underlying economic conditions, the tobacco giant is likely to continue growing its dividend for many more years. Therefore, income-oriented investors should lock in its 9.1% yield before it falls to more reasonable levels.

American Assets Trust (AAT) 

American Assets Trust is a REIT that has great experience in acquiring, improving and developing office, retail and residential properties in Southern California, Northern California, Oregon, Washington and Hawaii. Its office portfolio and its retail portfolio comprise of approximately 4.0 million and 3.1 million square feet, respectively.

The growth strategy of American Assets Trust involves the acquisition of properties in submarkets with favorable supply and demand characteristics, including high barriers to entry. In addition, the REIT redevelops many of its newly-acquired properties in order to enhance their value. It also has a capital recycling strategy, which involves selling properties whose returns seem to have been maximized and buying high-return properties.

Thanks to these growth drivers, American Assets Trust has grown its funds from operations [FFO] per unit every single year over the last decade, except for 2020 due to the pandemic. The REIT has grown its FFO per unit at a 4.4% average annual rate during this period. Moreover, it proved fairly resilient to the pandemic and has already recovered from that crisis.

American Assets Trust is offering a 10-year high dividend yield of 5.2%. Given the healthy payout ratio of 58% and the reliable growth trajectory of the REIT, the dividend is safe. The only caveat is the material debt load of AAT, which has an interest coverage ratio of only 1.9, much less than our comfort minimum of 3.0. On the bright side, American Assets Trust has received investment grade ratings from the major credit rating firms. Thanks to the reliable growth trajectory and the solid payout ratio of American Assets Trust, investors should rest assured that its 5.2% dividend is safe.

Cousins Properties (CUZ)

Cousins Properties is a REIT that acquires, develops and leases office buildings in high-growth Sun Belt markets. It generates 38% of its operating income in Atlanta and 29% of its operating income in Austin.

Sun Belt markets are attractive thanks to their superior economic growth compared to most other regions of the U.S. However, Cousins Properties has exhibited a volatile performance record. In addition, it has been significantly hurt by the coronavirus crisis, which has led many companies to adopt a work-from-home model. Cousins Properties has been caught in this downturn with a high debt load and hence it has been forced to sell some properties, in an effort to strengthen its balance sheet.

The stock of Cousins Properties has plunged 43% this year due to the impact of high interest rates on the valuation of REITs and fears of an upcoming recession. As a result, the stock is currently offering a 10-year high dividend yield of 5.5%. Given the healthy payout ratio of 47%, the dividend appears safe in the absence of a severe recession. On the other hand, the REIT cut its dividend by 13% in 2018 and hence it does not seem committed to maintaining a long-term dividend growth streak.

Overall, thanks to its markedly low price-to-FFO ratio of 8.6 and its 10-year high dividend yield, Cousins Properties is attractive from a long-term perspective. Nevertheless, due to the ongoing bear market and the strong downtrend of the stock, only the investors who can endure short-term pressure and focus on the long term should consider purchasing this stock.

Final Thoughts

High-dividend stocks make it easier for investors to endure bear markets, such as the ongoing one, as they offer a meaningful income stream to their shareholders while the latter wait for a recovery. With that said, investors should perform their due diligence to make sure that the dividends are reliable before purchasing these stocks. Altria and American Assets Trust are currently offering rock-solid dividends while Cousins Properties is offering an attractive dividend, which is fairly reliable.

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