Earlier this week, I explained why 2021 could be a good year for equity income investors. While momentum stocks are all the rage, high dividend payers have been neglected. Their dividend yields are high while their share prices are low.

In that article, I recommended the ALPS International Sector Dividend Dogs ETF (IDOG). A mutual fund is a great way to obtain portfolio diversification. IDOG owns 50 stocks spread across 10 sectors.

The advantage to portfolio diversification is that it minimizes the potential damage done by “specific risk” to an individual company. The grounding of the 737 MAX passenger jet in 2019 after a pair of deadly crashes was a risk specific to Boeing (NYSE: BA), the maker of that aircraft. In a matter of weeks, Boeing lost more than half its value.

The disadvantage to portfolio diversification is that it increases the odds of being affected by “systematic risk.” That refers to events that influence the entire stock market, such as the coronavirus pandemic.

For income investors, I suggest using a combination of mutual funds and individual stocks to increase yield while keeping specific risks within acceptable boundaries. A mix of two-thirds mutual funds and one-third individual stocks should accomplish that for most investors.

To that end, below are three high dividend payers that I would include in such a portfolio. Each of them currently pays a forward annual dividend yield above 8%.

Altria Group

Of all the unexpected beneficiaries of the coronavirus pandemic, tobacco giant Altria Group (NYSE: MO) may be one of the least intuitive. COVID-19 is a respiratory disease that attacks the lining of the lungs, making it especially dangerous to cigarette smokers.

Nevertheless, cigarette consumption increased in 2020 as homebound workers stepped outside to enjoy a quick smoke. For many smokers, cigarettes provide relief from the stress and anxiety brought on by the pandemic.

For that reason, Altria reported a 5.6% increase in adjusted/diluted earnings per share (EPS) over the first nine months of 2020. Company CEO Billy Gifford affirmed his commitment to paying a high dividend throughout the pandemic after the company released its 2020 Q1 results eight months ago:

“Our dividend is important to our investors and it remains a top priority for us. Our objective continues to be a dividend payout ratio target of approximately 80% of adjusted diluted EPS.”

Mr. Gifford has been true to his word. Two weeks ago, Altria’s board declared a quarterly cash dividend of 86 cents per share. That works out to a forward annual dividend yield of 8.2% at a share price of $42. The company is guiding for full-year adjusted/diluted EPS of at least $4.30. At an 80% payout ratio, that means there should be no risk of a dividend cut during the first quarter of 2021.

Iron Mountain

Another unlikely beneficiary of COVID-19 is real estate investment trust (REIT) Iron Mountain (NYSE: IRM). That’s because most REITs own office buildings or residential property. Many of those assets have been negatively impacted by the spike in small business closings and unemployment brought on by the pandemic.

But not so Iron Mountain, which specializes in highly secure storage facilities. The types of property stored in those facilities, such as priceless works of art and fragile historical documents, can’t be safely kept anywhere else.

Iron Mountain recently converted some of its facilities to data storage. Although records management still constitutes a majority of Iron Mountain’s storage revenue at 72% of income, data management and digital solutions contribute 22% of its sales. As Iron Mountain’s data management and digital solutions revenues expand, so does its operating margin.

In 2019, Iron Mountain’s total adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was 33.7%, a 13% improvement over its 29.7% margin five years prior. As a result of the coronavirus pandemic greatly increasing demand for cloud services, that figure is likely to make another jump over the next five years.

Iron Mountain is a REIT. By law, it must distribute at least 90% of its net operating income to avoid corporate income taxation. Iron Mountain’s most recent quarterly cash distribution was $0.6185 per share. That equates to a forward annual yield of 8.25% at a unit price of $30.

Enterprise Products Partners

The energy sector took a beating in 2020. Of course, that was in large part due to the coronavirus pandemic. Demand for gasoline plunged during the first half of the year as many workers stopped commuting into the office. As a result, energy stocks were the worst-performing sector of the S&P 500 Index in 2020, down more than 30%.

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It wasn’t just oil producers that took a hit. Less demand for gasoline means less crude oil and natural gas moving through pipelines. With 50,000 miles of pipeline crisscrossing North America, Enterprise Products Partners (NYSE: EPD) is arguably the MLP that would be most affected by changes in demand for those services.

Not necessarily. Through the first five months of 2020, U.S. waterborne crude oil exports were 24% higher than in 2019. That’s good news for EPD, whose pipeline network feeds all of the major oil export terminals on the Gulf of Mexico.

For that reason, the company’s distributable cash flow was higher over the first nine months of 2020 versus 2019. And since distributions are based on distributable cash flow, EPD actually increased its Q3 quarterly distribution slightly in 2020 to $0.445 per share. That works out to an 8.9% yield at a unit price of $20.

Looking for growth?

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