Table of Contents
Are you looking for dividends? That is a difficult task today, given the shockingly low interest rate on the market of approximately 1.3%. But if you’re willing to look, and perhaps make some reasonable risk-reward tradeoffs, you can find great companies with returns well above those of the S&P500 index.
Here’s why you might consider adding Federal Real Estate Investment Trust (NYSE: FRT), Real estate income (NYSE:O)And Toronto Dominion Bank (NYSE:TD) add to your dividend portfolio today.
Federal Realty is the only REIT Dividend King
For some investors, the most important thing about a dividend is that it is paid quarterly and grows from year to year. For some even retireesthat kind of consistency is just as important as the dividend yield because it helps them plan for the future.
Federal Realty has you covered, with 57 consecutive annual dividend increases (and counting). That’s the longest streak in the real estate investment trusts (REIT) industry and makes the company very elite Dividend King.
The company owns a relatively small portfolio (approximately 100 properties) of extremely well-located shopping centers and mixed-use assets. It’s always buying and selling assets to ensure the best opportunities are available. That includes the ability to redevelop a property to increase its value. It is a leading company in the retail niche.
There is one tradeoff to keep in mind with this stock. Investors know how well the REIT is managed and generally price it higher than its peers. Therefore, the dividend yield is ‘only’ 3.8%. That’s well above the market average, though, and for conservative investors it may be worth the premium to own such a reliable dividend payer.
Realty Income is the £800 net lease gorilla
If you’re looking for a higher return from a REIT, you may want to consider Realty Income and its 5% yield. That’s well above the 3.9% of the average REIT, based on the Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as a sector proxy. What’s most striking here, however, is the dominance that Realty Income has in its net leasing niche. With a market capitalization of about $54 billion, it is about four times the size of its nearest competitor. Don’t underestimate the importance of this.
Realty Income’s size and financial strength (its balance sheet has an investment grade rating) give the company privileged access to the capital markets. This gives the REIT the leeway to bid aggressively on real estate transactions and still make a profit. Furthermore, it may enter into deals that are too big for its smaller competitors to even consider. And it has the resources to act as a consolidator of the sector. There’s no reason to believe that Realty Income’s 29-year streak of dividend increases is in any danger of being broken. Add to that a globally diversified portfolio and there’s even more to like here, for those who want a little more return from their REITs.
Toronto-Dominion Bank is turning things around
Switching to banks, one of the highest interest options is Canada’s Toronto-Dominion Bank, commonly just called TD Bank. The bad news up front: TD Bank is in trouble with U.S. regulators over weaknesses in its anti-money laundering controls. A large fine is in the pipeline (the bank has already set aside about $3 billion in anticipation) and it will probably take some time before the bank regains the confidence of US regulators. Overall, TD Bank’s growth will likely be slower than hoped for a while. This is why investors have punished the stock, pushing the yield to an all-time high 5%.
If you think about decades and not days, TD Bank’s misstep is a long-term opportunity. First of all, the bank is Canadian, where strict regulations have isolated it from competition. Simply put, it has a very strong foundation. As for the US, the market where the bank has expanded its reach, time will eventually heal this wound and TD Bank will return to growth. It will take some time, but considering the huge yield (the average bank rate is only 2.5%), you will be paid very well to wait. It’s also worth noting that TD Bank has paid a quarterly dividend since 1857, so this is a very reliable dividend stock. If you can handle a fairly low-risk turnaround story, TD Bank could be the dividend stock for you.
Dividend stocks are here!
Don’t give up on dividend investing just because the market return is pathetically low. You just have to work a little harder to find the gems that fit perfectly into your own portfolio. Dividend King Federal Realty, industry giant Realty Income and turnaround story TD Bank are examples of the diamonds you can find if you take the time to look.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The ten stocks that made the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $656,938!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns September 3, 2024
Ruben Gregg Brouwer has positions in Federal Realty Investment Trust, Realty Income and Toronto-Dominion Bank. The Motley Fool holds positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has one disclosure policy.
3 top dividend stocks to buy in September was originally published by The Motley Fool