Finance
3 great dividend stocks that you won’t regret buying now
Dividend stocks are proven wealth creators. Over the past fifty years, they have outperformed non-paying companies by more than 2 to 1. A big driver is their steady (and often growing) income stream, which provides investors with solid basic returns year in and year out.
One Liberty Properties (NYSE:OLP), Truist Financial (NYSE: TFC)And Central American apartment communities (NYSE:MAA) have great results in paying dividends. That’s one of the factors that makes them stand out to some Fool.com contributors. This is why they think investors won’t regret buying this top of the range dividend stocks straight away.
The founding family wants to maintain this REIT’s dividend for years to come
Tyler Crowe (One Liberty properties): There are many shortcuts for investors to assess the viability of a dividend for years into the future. One of the most underappreciated cases is when the founding families have large business ownership. When a family’s income comes from the dividend payments of one stock, you can be reasonably confident that the company will be successful in securing these dividend payments.
That has been the case at One Liberty Properties for years. The Gould family founded the Real Estate Investment Trust (REIT) and still owns 27.4% of the outstanding shares. Their large stake in the REIT is likely the reason the company has paid consecutive dividends for more than thirty years.
A long dividend history is somewhat impressive, but what highlights the company’s commitment to its dividend is that management has maintained the payout even as it has undergone a complete portfolio transformation. Over the past decade, the company has evolved from a diversified REIT with a range of properties (fitness centers, furniture stores, offices and restaurants) to a portfolio of primarily industrial warehouses and distribution facilities. In 2016, industry made up approximately 22% of annual rent. Today, industrial properties make up 67%.
This portfolio transformation was a challenge. Financial resources from operations stagnated and the company had to take on more debt than most investors would be comfortable with. Despite these headwinds, it paid its dividend like clockwork.
With a transformed portfolio and improved financials, it won’t be surprising to see One Liberty Properties start increasing its payouts. At a current yield of 7.5%, that could be quite an attractive stock.
Take it to the bank
Jason Hall (Truist Financial): Admittedly, banks can be both very safe and very risky investments. They are leveraged (they have a lot of cash but lend out most of it) and are highly connected to the overall economy. Moreover, sentiment can cause stock prices to fall painfully if there are concerns about the economy. That can also create opportunities for investors, especially if you focus on the strongest, best-capitalized banks that can weather economic storms and continue paying their shareholders.
Truist Financial is on that shortlist for me. It has consistently delivered mid- and high-teens returns on common material stocks, has kept its expense ratio (how much of its revenue its operations have to cover) in the high 50% to low 60% range, and has maintained more than adequate liquidity to meet the needs of depositors and safeguard the balance sheet.
And while profits are under some pressure due to the rise in interest rates slowing lending, and very weak housing supply impacting the mortgage market, the sector is still generating strong profits well above the dividend. Last quarter it earned $0.81 per share, bringing its payout ratio for the quarter to 64%.
With a yield of over 5% and shares trading for just over 9 times earnings, investors willing to buy and hold for years won’t regret their investment in Truist Financial right now.
This passive income machine is for sale
Matt DiLallo (Central America apartment Communities): Apartment REIT Mid-America Apartment Communities, or MAA, has done a fantastic job of paying a stable and growing dividend. The company paid its 121st consecutive quarterly dividend last month. It has increased its payout for 14 years in a row, including by 5% at the end of last year. The REIT currently yields over 4%, about three times as much S&P500‘s dividend yield of approximately 1.3%.
A major factor driving these high returns is the 40% decline in the REIT’s share price from its 2022 peak due to higher interest rates. They weighed inon the value of real estate and made it more expensive for the REIT to borrow money to finance new developments and acquisitions. MAA has also faced near-term headwinds to rental growth due to increased new supply in many properties his markets.
However, these headwinds should disappear in the coming quarters. The Federal Reserve has indicated that it plans to cut interest rates as inflation declines, which many expect will happen later this year. Additionally, MAA believes new supply will decline later this year and into 2025 as the market absorbs all the new units currently coming online. This catalyst should “drive a strong and rapid recovery in rental performance,” said CEO Eric Bolton.
MAA also has a strong balance sheet, positioning the company to take advantage of emerging new growth opportunities. The REIT recently started construction on a new project and purchased land to build another project. These projects are among four to six the company expects to start over the next two years, in addition to the five it already has under construction. Add that to rental growth and falling interest rates, and MAA could turn a profit strong overall will return in the coming years. With plenty of upside catalysts and a growing dividend, you won’t regret buying MAA here.
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Jason Hall has positions in Truist Financial. Matt DiLallo has positions in Mid-America Apartment Communities and Truist Financial. Tyler Crowe has positions in apartment communities in Central America. The Motley Fool holds and recommends positions in Mid-America Apartment Communities and Truist Financial. The Motley Fool has one disclosure policy.
3 great dividend stocks that you won’t regret buying now was originally published by The Motley Fool
