1 Magnificent High-Yield Dividend Stock Down 20% to Buy and Hold Forever

High yields sometimes come with high risks. That's an important issue to keep in mind when you use dividend yield as a screening tool, as do most dividend-focused investors.

Right now, looking for yield alone might draw you to Annaly Capital Management (NYSE: NLY) and its massive 14%-plus dividend yield. But you'll probably be better off if you temper your income expectations and buy this 6.2%-yielding real estate investment trust (REIT) as it works its way back from a temporary business setback. Here's what you need to know.

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What does Annaly Capital do?

Annaly Capital is a mortgage REIT (mREIT). This is a fairly complex niche in the broader REIT sector, where most companies own and rent out physical properties.

Mortgage REITs like Annaly own portfolios of bond-like securities. These securities are created by pooling together mortgages. It would be very hard for an investor to track an mREIT, noting that interest rates, housing market dynamics, and even mortgage repayment trends impact the value of the securities Annaly owns.

But the really telling piece of the story here is shown in the graph. Notice the volatility in the orange line, which is the quarterly dividend. That volatility is basically mimicked by the purple line, which is the stock price.

NLY data by YCharts

Most dividend investors are looking for a reliable dividend that is hopefully growing over time. That's just not available here, and it is part and parcel to the mortgage REIT business model. To Annaly Capital's credit, the dividend was just increased, but that doesn't change the fundamental volatility of the mREIT business model.

Image source: Getty Images.

EPR Properties: A high yield and a steadily progressing turnaround

EPR Properties (NYSE: EPR) cut its dividend during the coronavirus pandemic at the turn of the decade. That was a bad outcome for income investors, but there was a very good reason for the dividend cut.

EPR Properties owns experiential properties that are meant to bring people together in large groups, from amusement parks to movie theaters. During the COVID pandemic, people were asked to socially distance, and nonessential businesses were shut down. EPR Properties cut the dividend to ensure it had enough liquidity to survive the health scare, while also acting to support its tenants through the difficult period.

EPR data by YCharts

That is exactly what it did, and now, several years later, the dividend is back and growing again. But the stock is still down around 20% from its pre-pandemic levels. To be fair, the dividend is also below its pre-pandemic levels, so the stock price decline makes sense.

And yet the dividend is growing again, which hints that the turnaround effort here is working. If you can stomach taking on a little risk, EPR's 6.2% dividend yield could be right up your alley.

In fact, EPR's tenants are in better financial shape today than they were prior to the pandemic, with rent coverage of 2x at the end of the first quarter of 2025 versus 1.9x in 2019. There are still some things that need to be fixed, including an overweighting in movie theaters. But with an adjusted funds from operations (FFO) payout ratio of around 70% in the first quarter of 2025, there's plenty of room for adversity here before another dividend cut would be in order.

In fact, it's more likely that the dividend will be increased, as it was in the second quarter of the year, as the turnaround continues.

All in, EPR is an example of a steady turnaround effort that's being executed very well.

If you are going to take a risk, take an educated risk

Risk is the important consideration here. Both Annaly Capital and EPR are riskier dividend stocks to buy. But Annaly's risk is inherent to its business model, and there's very little that can be done about that. EPR's risk is related to the structure of its portfolio, which management is working to change for the better.

You can get a massive double-digit yield from Annaly and live with constant uncertainty, or you can get a large and attractive yield from EPR and benefit from the business' ongoing turnaround. Still 20% below its pre-pandemic prices, there's likely to be more long-term appeal in EPR's stock for most dividend investors.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EPR Properties. The Motley Fool has a disclosure policy.