The benchmark stock indexes continue to soar to new heights, but there are plenty of attractive wallflowers in this dance. Some overlooked dividend payers offer high yields and reliable dividend payout growth, but you wouldn’t know that from looking at their share prices.
Shares of W. P. Carey (NYSE: WPC) And Royalty Pharma (NASDAQ: RPRX) have not long ago dropped to a low of 52 weeks, and they have only recovered a little. Let’s take a closer look at these stocks to see why adding them to a diversified portfolio at low prices gives you a great opportunity to come out ahead in the long term.
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WP Carey is a real estate investment trust (REIT) that is trading about 35% below its 2022 share price high water mark. At recent prices, it offers a yield of 6.2%.
This REIT’s shares have been under pressure since the split of 59 buildings in Net lease office buildings end of 2023 and has adjusted the dividend accordingly. Now that the problematic office buildings are the responsibility of another company, WP Carey can boast an occupancy rate of 98.8%.
Instead of operating its properties, WP Carey has tenants sign net leases that transfer all variable costs of building ownership to the tenant. Thanks to the annual rent increases included in long-term leases, the REIT was able to increase its dividend payout for 24 years in a row before cutting it due to the spin-off of Net Lease Office Property.
Since the spin-off, WP Carey has increased its dividend payout three times, and it could grow further in 2025. Management expects adjusted cash from operations, a measure of earnings, to be between $4.65 and $4.71 per share this year. That’s far more than the REIT needs to meet its current dividend obligation, which is currently set at just $3.50 per year.
After 2025, income-seeking investors can look forward to steadily increasing payouts from this geographically diversified REIT. It owns 1,430 single-tenant buildings across Europe and North America.
WP Carey’s tenant list is also well diversified, with the largest tenant responsible for just 2.7% of expected rental payments in the coming year. The ten largest tenants are responsible for just 20.2% of the REIT’s annualized base rent. This probably won’t be the fastest dividend grower in your portfolio, but it could be the most reliable.
Individual drug launches are more than a little unpredictable, but rising prescription drug costs are a highly reliable trend that income-seeking investors can use to their advantage by investing in Royalty Pharma. At recent prices, the stock offers a yield of 3.2%.
As the name suggests, this specialized financier lends money to drug manufacturers in exchange for a royalty interest in their new, or sometimes experimental, products. Its track record is remarkable, with a stake in 15 blockbuster drugs generating annual sales of more than $1 billion.
Royalty Pharma started trading publicly in 2020 and since then it has increased its dividend four times to a total of 40%. Investors can look forward to more major dividend increases in the coming years. Since the start of 2022, it has announced transactions worth $10.1 billion, and many of these investments have not yet had time to generate significant royalties.
I expect a lot of earnings growth from Royalty Pharma in the coming years, but it is a stock that investors will want to hold for the next decade. That’s because the vast majority of companies developing new drugs do not have sufficient capital to conduct a successful commercial launch. The company believes that startup drugmakers will need more than $1 trillion in capital over the next decade. As the industry’s largest provider of royalty financing, the company will be able to choose from a larger list of potential borrowers than its peers.
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*Stock Advisor returns December 2, 2024
Cory Renauer has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2 Exceptional Dividend Stocks Near 52-Week Lows You Might Regret If You Didn’t Buy on the Dips was originally published by The Motley Fool
