Are you looking for dividends? That’s a tough one today, given the market’s shockingly low 1.3% or so yield. But if you are willing to look, and perhaps make some reasonable risk/reward trade-offs, you can find great companies with yields well above that of the S&P 500 index.
Here’s why you might want to consider adding Federal Realty Investment Trust (NYSE: FRT), Realty Income (NYSE: O), and Toronto-Dominion Bank (NYSE: TD) to your dividend portfolio today.
Federal Realty is the only REIT Dividend King
For some investors, the most important things about a dividend are that it gets paid every single quarter and that it grows from year to year. In fact, for some retirees, that 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) under its belt. That’s the longest streak in the real estate investment trust (REIT) sector and makes the company a highly elite Dividend King.
The company owns a relatively small portfolio (around 100 properties) of extremely well-located strip malls and mixed-use assets. It is always buying and selling assets, to ensure that it has the best opportunity ahead of it. That includes the ability to redevelop a property to increase its value. It is a bellwether company in the retail niche.
There is one trade-off to factor in with this stock. Investors know how well-run the REIT is and generally afford it a premium price to its peers. That’s why the dividend yield is “just” 3.8%. However, that’s well above the market average, and for conservative investors, it might be worth the premium to own such a reliable dividend payer.
Realty Income is the 800-pound gorilla in net lease
If you are looking for a higher yield from a REIT, then you might want to consider Realty Income and its 5% yield. That’s well more than the 3.9% of the average REIT, using the Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as an industry proxy. The really notable thing here, however, is the dominance that Realty Income has in its net lease niche. With a market cap of around $54 billion, it is about 4 times the size of its next closest peer. Don’t underestimate the importance of this.
Realty Income’s size and financial strength (its balance sheet is investment grade rated) afford it advantaged access to capital markets. This gives the REIT the leeway to bid aggressively on property deals and still turn a profit. Moreover, it can take on deals that would be too large for its smaller competitors to even consider. And it has the wherewithal to act as an industry consolidator. There’s no reason to believe that the 29-year streak of dividend increases at Realty Income is in any danger of being broken. Add in a globally diversified portfolio and there’s even more to appreciate here, for those who want a bit more yield from their REITs.
Toronto-Dominion Bank is turning things around
Switching gears to banks, one of the highest-yielding options is Canada’s Toronto-Dominion Bank, usually just called TD Bank. The bad news up front: TD Bank is in hot water with U.S. regulators because of weaknesses in its money laundering controls. There’s a big fine on the way (the bank has already set aside around $3 billion in anticipation) and it will probably take some time before the bank regains the trust of U.S. regulators. All in, TD Bank’s growth is likely to be slower than hoped for a bit. This is why investors have punished the stock, pushing the yield up to a historically high 5%.
If you think in decades and not days, TD Bank’s misstep is a long-term opportunity. First off, the bank is Canadian, where heavy regulation has insulated it from competition. Simply put, it has a very strong foundation. As for the U.S., the market in which the bank has been expanding its reach, time will eventually heal this wound and TD Bank will start growing again. It will just take time, but given the huge yield (the average bank yields just 2.5%), you are being paid very well to wait. It is also worth noting that TD Bank has paid a dividend every quarter 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 out there!
Don’t give up on dividend investing just because the market’s yield is pathetically low. You just have to work a bit harder to find the gems that will 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 Realty Income right now?
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Reuben Gregg Brewer has positions in Federal Realty Investment Trust, Realty Income, and Toronto-Dominion Bank. The Motley Fool has positions in and recommends Realty Income and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
3 Top Dividend Stocks to Buy in September was originally published by The Motley Fool
