3 Dividend Stocks With Yields Over 5%. Should You Buy?

The article emphasizes that while high dividend yields (above 5%) often signal underlying risks, sustainable payouts can be found by scrutinizing business fundamentals beyond just the yield. It highlights three examples: Realty Income (O), a REIT with a 5.5% yield supported by predictable long-term leases and 112 consecutive dividend increases; Enterprise Products Partners (EPD), a midstream energy MLP offering a 6.9% yield from fixed-fee contracts and 27 years of distribution growth; and Kenvue (KVUE), a consumer health company with a 5.6% yield, strong brand portfolio, and robust free cash flow. These companies exemplify how strong balance sheets, consistent cash flow coverage, and durable business models can provide attractive, diversified income for investors.

Analysis

The article emphasizes that while high dividend yields (above 5%) often signal underlying risks, sustainable payouts are achievable through rigorous fundamental analysis, focusing on coverage ratios, balance sheet health, and business durability. It posits that not all high yields are traps, presenting three companies with yields exceeding 5% that demonstrate strong underlying fundamentals.

Realty Income (O) exemplifies stability with a 5.5% forward yield, supported by 98% occupancy in H1 2025, long-term net leases, and 112 consecutive quarterly dividend increases. Enterprise Products Partners (EPD) offers a 6.9% forward yield, underpinned by 82% fixed-fee revenue, a 1.6x cash flow coverage, and a $6.7 billion project backlog driving 4-5% annual distribution growth. Both demonstrate robust cash flow generation and commitment to shareholder returns.

Kenvue (KVUE), despite a 15% post-IPO share decline, exhibits resilience with 3.2% Q2 organic sales growth and reaffirmed full-year guidance. Its 5.6% yield is well-covered by a 48% payout ratio and over 2x free cash flow coverage, offering a high-quality consumer staples name at 13x forward earnings, though inherited talc litigation remains a concern.

Collectively, these three companies provide diversified exposure across real estate, energy infrastructure, and consumer health, balancing income, stability, and recovery potential. Their strong balance sheets, consistent cash flow, and durable business models suggest these high yields are sustainable, offering value for income-focused investors.

Key Decisions for Investors

• Investors should prioritize dividend sustainability over headline yield, scrutinizing coverage ratios, balance sheet strength, and business model durability.
• Consider Realty Income (O) for consistent, inflation-protected cash flow and Enterprise Products Partners (EPD) for high, growing income from critical energy infrastructure, acknowledging EPD's K-1 tax implications.
• Evaluate Kenvue (KVUE) for a high-quality consumer staples exposure at a reasonable valuation, weighing its strong fundamentals against potential legal risks from inherited talc litigation.
• Utilize a diversified approach across sectors like real estate, energy infrastructure, and consumer health to balance income, stability, and growth potential in a dividend-focused portfolio.