The Smartest High-Yield Dividend Stocks to Buy With $100 Right Now

Why wouldn't an income investor want to own a stock that has a 14% dividend yield? That's an awfully tempting number, given that the average return of the S&P 500 (SNPINDEX: ^GSPC) is generally considered to be around 10% a year.

The problem is that when things look too good to be true, they often are. Here's why these two out-of-favor high-yield stocks are better income options than ultra-high-yield AGNC Investment (NASDAQ: AGNC) if you happen to have $100 available to put into stock investing right now.

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AGNC Investment has let dividend investors down

Sometimes, dividend cuts happen for a good reason that may even position a company for a better future. However, in the case of AGNC Investment, dividend cuts appear to be a part of the business model. That's not actually a knock on AGNC Investment, a well-respected mortgage real estate investment trust (REIT). It is simply a statement of fact, given the dividend history.

Data by YCharts.

As the chart highlights, AGNC Investment's dividend rose sharply after its IPO, and then it began a long decline. The share price, not surprisingly, went along for the ride. If you used those dividends to pay living expenses, you would have ended up with less income and less capital.

That would be far from the ideal outcome for most dividend investors. However, it is not unusual for mortgage REITs to cut dividends as market conditions change for the mortgage securities they buy. These are complex investments that are impacted by things like interest rates, housing market dynamics, and mortgage repayment trends, among other things.

The big takeaway here, however, is that with AGNC Investment, dividend cuts are likely to continue. There could also be increases, but if dividend consistency is important for you, this is not the income stock you'll want in your portfolio despite its lofty 14% yield.

Buy NNN REIT and Federal Realty instead

If you are looking for dividend consistency so you can be confident in the income stream your dividend portfolio is generating, you'll want to look at NNN REIT (NYSE: NNN) and Federal Realty (NYSE: FRT). NNN REIT is offering a dividend yield of around 5.5%. That's much lower than what you'd get from AGNC Investment, but NNN REIT's dividend has been increased annually for 35 consecutive years. This is a dividend you can count on.

NNN REIT owns single-tenant retail properties and uses the net lease approach, which means its tenants are responsible for most property-level operating costs. The key to the REIT's success, however, is that it partners with growing retailers, doing sale/leaseback transactions that allow the retailer to raise cash for more growth. Since 2007, 73% of its property acquisitions have come from existing relationships and have higher returns than its other deals.

Although it wouldn't be right to suggest that NNN REIT has built-in growth, it clearly has a model that works very well for dividend investors. Add in a yield that's multiples of the yield on offer from the S&P 500 index, and you have a potential income winner on your hands.

Federal Realty is even more reliable than NNN REIT, given that Federal Realty is the only Dividend King REIT. It has increased its dividend for a huge 57 consecutive years. The dividend yield is an attractive 4.5%. If dividend consistency matters to you, there is no better REIT to consider.

Federal Realty owns strip malls and mixed-use developments. Unlike its peers, which focus on building large portfolios, Federal Realty's focus is on quality over quantity. It only owns around 100 properties, but they are large and very well located. And, just as important, the vast majority of its assets have upgrade potential. That is one of the key ways that Federal Realty creates value, since it is constantly redeveloping properties.

That said, Federal Realty's redevelopment skills change its business model in other ways, too. This is because it will sell assets that have reached a full valuation, usually thanks to the REIT's upgrades, and use the proceeds to buy new properties with more opportunity for value creation. For investors who like reliable dividends, Federal Realty is a clear winner.

Don't wait -- buy if you can

If you are looking for a reliable, high-yield dividend stock, you'll want to add NNN REIT and its partnership-driven business model to your portfolio right now. Since the stock trades well below $100, you can easily do so. Federal Realty is trading right on the edge of $100, so if that's the cash you have to spend, you might have to be opportunistic, watching for the right time to jump. Given its status as a Dividend King, however, this ultra-reliable income stock is probably worth the extra effort.

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Reuben Gregg Brewer has positions in Federal Realty Investment Trust. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.