Royal Dutch Shell plc (ADR) (RDS.B), Alliance Resource Partners, L.P. (ARLP): The Right and Wrong Reasons to Buy Dividend Stocks

Longer term, coal is an important fuel source and demand is likely to stabilize in the United States and grow abroad. So coal prices are weak now but should pick up again over the next year or so. Moreover, gas prices, though still at historically low levels, have risen enough that coal use has begun to increase at U.S. utilities. The higher natural gas prices go, the more desirable coal becomes.

This limited partnership yields around 6.4% and has a long history of regular dividend increases. Although it has a high yield, low interest rates are only a small part of the reason. This top-notch performer in a struggling market should be on income investors’ buy lists.

Government Payments

Omega Healthcare Investors Inc (NYSE:OHI) is a real estate investment trust yielding around 5.9%. The company owns or holds mortgages on over 450 skilled nursing facilities and assisted living facilities in over 30 states. The aging of the baby boomers is going to notably increase the need for such facilities as the massive age group quickly flows into retirement.

The REIT’s yield is more than a percentage point above similarly focused Health Care REIT, Inc. (NYSE:HCN). The reason for that is an elevated exposure to third party payment issues, which increasingly means government payments. That’s a legitimate concern.

However, Omega Healthcare Investors Inc (NYSE:OHI) is about half the size of Health Care REIT. Its growth prospects are more material because smaller deals remain meaningful. And, like Health Care, it has increased its dividend on an annual basis for more than a decade. Although it’s unlikely that the top line will quadruple and the dividend more than double over the next decade like they did over the last one, continued growth is fairly certain. The third-party payment risk looks to be overblown.

Don’t Chase Yield

You shouldn’t chase yield, ever. But that doesn’t mean that some high-yield stocks aren’t good long-term investments right now. It just means you need to believe in the underlying story. Shell, Alliance Resource Partners, L.P. (NASDAQ:ARLP), and Omega Healthcare Investors Inc (NYSE:OHI) all have high yields and good stories to tell. Don’t let rising interest rates scare you away from good long-term investments.

The article The Right and Wrong Reasons to Buy Dividend Stocks originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Alliance Resource Partners, L.P.. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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