Looking for dividends? That’s a tough one these days, given the market’s shockingly low yield of around 1.3%. But if you’re willing to look, and perhaps make some reasonable risk/reward trade-offs, you can find great companies with yields well above the S&P 500 index.
This is why you might want to consider adding Federal Real Estate Investment Fund (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 out quarterly 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). That’s the longest streak in the real estate investment trust (REIT) industry, making the company a very elite Dividend King.
The company owns a relatively small portfolio (around 100 properties) of extremely well-located shopping centres and mixed-use assets. It is always buying and selling assets to ensure it has the best opportunities available to it. This includes the ability to redevelop a property to increase its value. It is a frontrunner in the retail niche.
There is one consideration we have to make with this stock. Investors know how well the REIT is run and generally pay a higher price for it than similar companies. That is why the dividend yield is “only” 3.8%. That is still well above the market average and for conservative investors it can be worth owning such a reliable dividend payer.
Realty Income is the 800-pound gorilla in net lease
If you’re looking for a higher yield from a REIT, you might want to consider Realty Income with its 5% yield. That’s well above the 3.9% of the average REIT, using the Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as a proxy for the industry. What really stands out here, however, is the dominance Realty Income has in its net lease niche. With a market cap of about $54 billion, it is about 4 times the size of its nearest competitor. Don’t underestimate the importance of this.
Realty Income’s size and financial strength (its balance sheet is investment grade) give it privileged access to the capital markets. That gives the REIT the latitude to bid aggressively on real estate transactions and still turn a profit. It can also take on deals that would be too big for its smaller peers to even consider. And it has the resources to act as an industry consolidator. There’s no reason to believe Realty Income’s 29-year streak of dividend increases is in 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 yield from their REITs.
Toronto-Dominion Bank turns the tide
When it comes to banks, one of the highest-yielding options is Canada’s Toronto-Dominion Bank, which is often simply called TD Bank. The bad news up front: TD Bank is in hot water with U.S. regulators due to weaknesses in its anti-money laundering controls. A large fine is on the way (the bank has already set aside about $3 billion in anticipation), and it will likely take some time for the bank to regain the trust of U.S. regulators. All in all, TD Bank’s growth will likely be a bit slower than hoped. As a result, investors have punished the stock, pushing its yield to a historic high of 5%.
If you think in decades, not days, TD Bank’s misstep is a long-term opportunity. First, the bank is Canadian, where strict regulation has insulated it from competition. Simply put, it has a very strong fundamental. As for the U.S., the market in which the bank has expanded 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’re getting very well paid 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 relatively risk-free turnaround story, TD Bank could be the dividend stock for you.
There are dividend stocks!
Don’t give up on dividend investing just because the market yield is ridiculously 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.
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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 Best Dividend Stocks to Buy in September was originally published by The Motley Fool
