Top 3 High Yield Financial Stocks to Buy in September

Finding stocks with a good dividend yield can be difficult when the broader market is hovering near all-time highs and S&P500′The efficiency is just 1.2%. But don’t give up – just try harder.

If you do this, you’ll find gems like Bank of Nova Scotia (NYSE:BNS)with a rate of return of 6.2%; W.P. Carey (NYSE:WPC)which is 5.8%; and EPR Properties (NYSE: EPR)with a whopping 7.2% dividend. Here’s a quick look at each of these attractive high-yield stocks.

1. Bank of Nova Scotia Just Raised the Bar

Bank of Nova Scotia, usually referred to simply as Scotiabank, took an unusual approach to growth, focusing on expanding in South America at a time when its Canadian banking peers were expanding in the U.S. It didn’t work out as well as hoped, and Scotiabank lagged behind its peers in key metrics (such as profit growth), largely because of its exposure to emerging South American economies.

Its Canadian operations remain large and fairly well-positioned. Yet investors are not happy, and the stock is deep in the red, offering a well-above-average yield of 6.2%. By comparison, the average bank yield is about 2.5%.

Bank of Nova Scotia is not ignoring the problem. It has outlined a plan to exit less desirable markets (Colombia) and focus on more desirable ones (Mexico). It also intends to expand its presence in the United States, with the goal of creating a North American banking giant (with operations spanning from Canada to Mexico).

And the company is already implementing this plan, recently announcing an agreement to buy almost 15% Key CorpThe investment is expected to be very profitable and open up interesting opportunities for the future, although there is no guarantee that a merger is in the cards.

To be fair, it’s still a bit of a turnaround story, but if you think back over the decades, Scotiabank is worth a closer look for dividend investors. Interestingly, the bank has paid a dividend every year for over 150 years!

2. WP Carey Hit the Reset Button and the Company Returned to Dividend Growth

Just to preempt the bad news, WP Carey was on the verge of a 25-year dividend growth streak and… cut its dividend. But here’s the interesting thing: the dividend started increasing again the very next quarter.

So what’s really happening with this REIT that’s sporting an attractive 5.8% yield? Don’t think of it as a dividend cut; think of it as a business restart.

As far as REITs go, WP Carey is one of the most diversified you’ll find, with assets in warehouses, industrials, retail, and a large “other” category. It also has properties in Europe, which also adds to its geographic diversification.

The story continues

Now, there is the missing office exposure, which has been reduced to almost zero. The dividend cut came as WP Carey decided it had to move faster on the office reduction front due to the headwinds facing its niche property business. In about a year, the office exposure fell from 16% to, well, almost zero (the final sale of offices is due by the end of 2024). The dividend cut reflects the rapid exit from office.

Other than that, nothing significant has changed in the way WP Carey operates. If you’ve passed on this high-yielding REIT because of its dividend cut, you might want to give it a second chance.

3. EPR Properties is back on solid ground

So far, all of these high-yield financial stocks have some flaws. But EPR Properties, a REIT that focuses on owning experiential assets, probably has the biggest flaws.

From a long-term perspective, it’s an attractive niche. But in 2020, as the coronavirus pandemic raged, it was a terrible focus. EPR Properties ultimately cut its dividend to ensure it could survive the pressures its tenants were facing. Since then, the world has learned to live with COVID, and EPR Properties is back on solid ground.

Interestingly, EPR’s dividend has started to grow again. And perhaps more importantly, its adjusted funds from operations (FFO) payout ratio in Q2 was a very strong 70% or higher. Also interesting is that the company’s rent coverage is now higher than it was just before the pandemic in 2019.

There are still some issues to address, including reducing the REIT’s exposure to movie theaters (rents are too high at 37%). But EPR is operating from a position of strength right now, a fact that Wall Street seems reluctant to give it credit for.

There are always some compromises

You may have noticed this theme. Scotiabank, WP Carey and EPR Properties all have high returns and companies with a few drawbacks. Investing is all about balancing risk and reward, and when it comes to high returns, you often have to be willing to accept some drawbacks.

The key thing, however, is that each of these high-yield stocks is financially strong and has a good business. Yes, they are dealing with short-term headwinds, but it seems likely that they will succeed in that endeavor while still rewarding income investors very well.

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Reuben Gregg Brewer holds positions in Bank Of Nova Scotia and WP Carey. The Motley Fool recommends Bank Of Nova Scotia and EPR Properties. The Motley Fool has a disclosure policy.

The 3 Best High Yield Financial Stocks to Buy in September was originally published by The Motley Fool