My Highest Conviction High-Yield Dividend Stock to Buy in December

I've been an active investor for decades. Throughout most of that time, I wouldn't consider buying a high-yield dividend stock. My priority was on growth – and my portfolio reflected that focus.

Over the last several years, though, dividend stocks with especially juicy yields have increasingly captured my attention. To be transparent, I've been burned a couple of times by stocks with high yields that performed so dismally that the great dividends were more than offset by losses. However, I think I have learned from my mistakes.

I now own several high-yield dividend stocks that I really like. I have my eyes on others. Some stocks inevitably rise to the top, though. What's my highest conviction high-yield dividend stock to buy in December?

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What it takes to earn my confidence

Before I answer that question, let me first explain what it takes for a high-yield dividend stock to earn my confidence. The company paying the dividend must meet four criteria to pass the test.

First, and most importantly, the company must have a strong and resilient underlying business. If the business doesn't check off these two boxes, the dividend probably isn't sustainable. I've learned not to let the lure of a shiny dividend yield distract me from objectively evaluating the underlying business that makes the dividend possible.

Second, the company's management team must have a solid track record. I'm not the kind of investor who adheres 100 percent to the adage, "Bet on the jockey, not the horse." I believe that both the jockey and the horse are important. An inept management team can usually derail an otherwise good business, but even the greatest managers typically can't turn a dud of a business into a winner.

Third, the company's financials must at a minimum support the dividend at its current level. Would I possibly buy a high-yield dividend stock for which this isn't the case? Yes, but only if I were investing in it for reasons other than its dividend. For a high-yield dividend stock to truly receive my highest conviction, I must be confident that a dividend cut is unlikely.

Fourth, I want the company to have a compelling history of dividend stability and (preferably) growth. No, past performance doesn't necessarily guarantee that things won't change in the future. However, I get a much warmer and fuzzier feeling about companies that have long records of maintaining and growing their dividends. If nothing else, it puts more pressure on management not to mess things up.

How my highest-conviction high-yield dividend stock delivers

One high-yield dividend stock delivers on those four criteria more than any other, in my view. It's Realty Income (NYSE: O). The company ranks as the world's sixth-largest real estate investment trust (REIT). It owns 15,542 commercial real estate properties leased to 1,647 clients representing 92 industries.

I believe Realty Income's record of 29 consecutive years of positive total operational returns (adjusted funds from operations per share growth plus dividend yield) demonstrates the strength and resilience of its underlying business. That's especially true considering this period included the financial crisis of 2007-2009 and the COVID-19 pandemic.

Summit Roy ably led the REIT through one of those crises. Roy joined Realty Income in 2011 and served as COO for roughly four years before becoming CEO in 2018. Even during the worst part of the COVID-19 shutdowns, Realty Income's occupancy levels were 97.9% – much higher than the median for S&P 500 (SNPINDEX: ^GSPC) REITs.

Can Realty Income support its dividend, which currently yields a juicy 5.6%? Absolutely. The REIT's dividend payout represents only 74.7% of its diluted adjusted funds from operations (AFFO) per share.

Now for the pièce de résistance. Realty Income has increased its dividend for more than 30 consecutive years and 112 consecutive quarters. We're not talking about skimpy dividend increases, either. The REIT has increased its dividend by a compound annual growth rate of 4.2% since 1994. That's a dividend track record that inspires confidence.

More than just a dividend

There's more good news, though. Realty Income offers more than just a fantastic dividend. The REIT's growth prospects are also attractive.

Realty Income estimates that its total addressable market is around $14 trillion. Europe makes up $8.5 trillion of that total. The market is highly fragmented, presenting the REIT with an especially great opportunity. Realty Income also has tremendous growth prospects in the U.S., driven in part by the soaring demand for data centers.

I believe that Realty Income is a no-brainer for income investors seeking reliable and high dividends. However, I also view this stock as a good option for other investors to consider buying in December and then reinvesting those exceptional dividends.

Keith Speights has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.