When it comes to dividend investing, there are two broad ways to invest: for income or for income growth. Both are important and, honestly, can be very complementary to include in the same portfolio.
Right now, you can buy high-yield bonds for less than $200 Toronto Dominion Bank (NYSE:TD) and dividend grower Rexford Industrial (NYSE: REXR) while they all seem attractively priced. Here’s a quick look at each of these competitively priced dividend stocks.
Toronto-Dominion Bank hits a bump in the road
Toronto-Dominion Bank, better known as TD Bank, has a dividend yield of 4.7%. That is almost the highest level in the bank’s history. It’s also almost twice the 2.5% yield the average bank uses SPDR S&P Bank ETF (NYSEMKT: KBE) as a sector proxy. This is from a bank that has paid dividends every year since 1857.
That’s not a typo: TD Bank has been around for a long time and has managed to reliably pay investors through thick and thin, including the Great Depression and the Great Recession. Note that TD Bank did not cut its dividend during the Great Recession, as was the case with many of the largest U.S. banks. If you want to buy reliable dividend stocks when they look cheap, TD Bank is the way to go.
But that leaves the question of why TD Bank stock is selling off. Without going into the ugly details, the company’s anti-money laundering controls failed in the US market. The fallout has been significant for the bank, with the cancellation of a planned merger, additional costs to improve internal controls and the need to set aside approximately $3 billion to cover the fines and legal costs facing the company.
Moreover, TD Bank will now have to restore confidence among regulators and investors. Growth, especially acquisition-driven expansion in the United States, will likely stall for a while, perhaps even a few years.
That’s bad, but TD Bank remains an industry giant with a solid foundation in its home market of Canada. It still has an investment-grade rated balance sheet. And it doesn’t appear there is a material risk of a dividend cut.
If you don’t mind collecting a fat dividend while you wait for management to handle these headwinds, buy now while Wall Street is, perhaps unreasonably, downbeat about TD Bank.
Rexford Industrial keeps growing (the dividend)
Rexford Industrial is a real estate investment trust (REIT) with a laser-like focus on industrial assets in the Southern California market. It currently offers a dividend yield of around 3.5%. That’s actually slightly lower than the REIT average of 3.7% Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as a sector proxy.
However, it is at the high end of the REIT’s own historical return range. That suggests the stock is historically cheap. The premium over the average REIT, meanwhile, is likely due to the fact that Rexford’s compound annual dividend growth has been around 13.5% over the past decade. That’s a shockingly high number for a REIT.
The key here is that Rexford’s chosen regional and real estate focus, although very limited, is working out very well. Southern California’s industrial market is one of the largest in the country and the world because it serves as a gateway from Asia to the U.S. market. Supply is limited due to tight permits and the ongoing transition of industrial assets to other uses, such as housing.
Rexford has a long, successful history of investing to upgrade its properties so that the company can charge higher rents. And with Rexford only owning about 2.7% of the market it wants to focus on, there appears to be plenty of room for growth in the future.
If you like dividend growth stocks, not only does it look like Rexford is on sale today, but there also seems to be no reason to expect the REIT’s growth to stagnate.
Maybe buy them both?
High-yield stocks like TD Bank are providing income these days, perhaps to support spending needs in retirement. Dividend growth stocks like Rexford allow investors to grow their income over time, with the goal of outpacing the ravages of inflation. While you may prefer one approach (and stocks) over the other, you may want to consider pairing them together. Keep in mind that they both trade well below $200 and together can generate income for today and tomorrow.
Should you invest $1,000 in Toronto-Dominion Bank now?
Consider the following before purchasing shares in Toronto-Dominion Bank:
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Reuben Gregg Brewer holds positions at Toronto-Dominion Bank. The Motley Fool holds and recommends Rexford Industrial Realty and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
2 No-Brainer Dividend Stocks to Buy Now for Under $200 was originally published by The Motley Fool
