The stock market recently reached another record high. The S&P500 is up more than 30% in the past year, driven by a strong economy and falling interest rates. As a result, the valuations of most stocks have soared. The S&P 500 currently trades at more than 24 times earnings, that is much higher than the roughly 20x price-to-earnings ratio it had this time last year.
Although the broader market is getting more expensive, there are some bargains out there if you know where to look. Various real estate investment funds (REITs) are incredibly cheap now because they have not yet reaped the full benefits of falling interest rates. Real estate income (NYSE:O), W. P. Carey (NYSE:WPC)And EPR properties (NYSE: EPR) stand out for their attractive values and high dividend yields at the moment.
This high-quality dividend stock is next sale
Realty Income is a diversified REIT that owns stable retail, industrial and gaming properties net rented to high-quality tenants with long-term agreements. That offer rental contracts it with terribly stable rental income because the tenants cover all operating costs, including routine maintenance, building insurance and property taxes. That gives it a lot of insight into its income.
The REIT currently expects to generate between $4.15 and $4.21 per share in adjusted funds from operations (FFO) this year. With its share price recently above $60 each, Realty Income trades at about 15 times adjusted FFO. That incredibly cheap valuation is why the REIT offers a high dividend yield. At more than 5%, this is several times higher than the S&P 500’s sub-1.5% dividend yield.
Realty Income has done a fantastic job of increasing the dividend over the years. It has increased its payout 108 straight quarters And every year for three decades. The REIT routinely invests billions of dollars purchased every year new income-generating net rental real estate. These investments should grow adjusted FFO, enabling the company to steadily increase its dividend.
Build back better
WP Carey is also a diversified REIT. It owns industrial, retail and other properties (including a portfolio of operated self-storage locations). The focus is on owning operationally critical commercial real estate, which is rented to high-quality tenants.
The REIT has shuffled its portfolio quite a bit over the past year. At the end of last year it made the strategic decision to leave the office sector. Meanwhile, a major self-storage tenant exercised its option to purchase the properties it had leased from the REIT. Those sales have weighed on the dividend, the FFO and the valuation of the REIT.
WP Carey expects to generate between $4.63 and $4.73 in adjusted FFO per share this year. With the current share price right around $60 per share, the REIT trades at less than 13 times its FFO. That incredibly cheap valuation is why it currently has a dividend yield of almost 6%. The company has already started rebuilding its portfolio and dividend, which should continue going forward.
A cheap ticket to lots of dividend income
EPR Properties is a REIT that owns experiential properties such as movie theaters, attractions and entertainment venues. It rents these properties back to operating companies on the basis of long-term net lease agreements.
The REIT expects its experiential real estate portfolio to generate $4.76 to $4.96 in FFO this year. With a share price below $50, the REIT is trading around $50 10 times his FFO. That ridiculously cheap level is why it offers a dividend yield of over 7%.
EPR Properties generates enough income to cover its high-yield dividend, while still leaving plenty of room. That gives it the financial flexibility to invest in building and purchasing more experience properties. It plans to spend between $200 million and $300 million this year. These investments will help grow FFO, what it should make possible the REIT to further increase its dividend.
Dirt-cheap dividend stocks
Higher interest rates have weighed on REIT valuations in recent years. Although interest rates are starting to fall, many REITs are still trading at bargain prices.
Realty Income, WP Carey and EPR Properties are among the cheaper REITs, which is why they have such attractive dividend yields. These high yields, along with their low valuations and improving growth prospects, position these dividend stocks to generate strong total returns in the coming years, making them look like Great buys now.
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Matt DiLallo has positions in EPR Properties, Realty Income and WP Carey. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
3 Incredibly Cheap Dividend Stocks to Buy Now was originally published by The Motley Fool
