The stock market has risen sharply over the past year and has routinely gone up to new record highs. And that means stocks are starting to get more expensive. The S&P 500 currently trades at around 24.5 times earnings, which is above the sub-22.5 level traded a year ago.
There are still some bargains to be had though outside if you know where to look. For example, many real estate investment trusts (REITs) are still incredibly cheap because the impact that higher interest rates have had about real estate valuations. As a result, most high yield dividendsThree dirt-cheap REITs to buy now are WP Carey (NYSE: WPC), Real estate income (NYSE: O)And EPR properties (NYSE: EPR).
Returning to a growth path
WP Carey currently expected between $4.63 and $4.73 in adjusted Funds from operations (FFO) per share this year. With its share price recently under $60, the diversified REIT trades at about 13 times its earnings at the midpoint of its guidance range. That incredibly cheap valuation is why its dividend yield is nearly 6% these daysseveral times above the less than 1.5% level of the S&P 500.
Higher interest rates are just one of the factors weighing on the REIT. It has been working to upgrade its portfolio over the past year, strategically exiting the office sector. It also had a major tenant exercise its option to buy the properties it had leased from the REIT. Those sales weighed on WP Carey’s adjusted FFO, which led it to reinstate its dividend last year.
WP Carey is slowly rebuilding its portfolio, however. The firm agreed to invest $641 million in several industrial and retail real estate acquisitions by the end of June. It is on track to close $1.25 billion to $1.75 billion Of deals this year. These acquisitions should put the REIT back on a growth trajectory in the second half of 2024. That has already allowed WP Carey to raise its dividend again. With plenty more growth to come, the current price and yield make it look very attractive, especially since the valuation should rise as earnings return to a growth trajectory.
Still growing despite headwinds from higher rates
Fellow diversified REIT Realty Income expects to generate between $4.15 and $4.21 in adjusted FFO per share this year. With a share price of around $62, this REIT sells for less than 15 times earnings. That’s the main reason it currently offers a dividend yield of around 5%.
Because higher interest rates make it more expensive for the REIT to make new investmentsIt expected to invest only $3 billion this year Unpleasant expand its portfolio, excluding the completion of the $9.3 billion merger with Spirit Realty. That’s down from the average of more than $9 billion over the past two years.
While higher rates are currently a headwind for the REIT, many expect them to start to fall later this year. That would allow it to acquire more properties to support its steadily rising dividend. Realty Income has given investors 107 straight quarters of raises. A higher growth rate could also boost its valuation.
Your ticket to an exciting monthly income stream
EPR Properties focuses on experience-based real estate such as movie theaters, attractions, and fitness and wellness properties. The specialized REIT expects its portfolio to deliver between $4.76 and $4.96 per share FFO, as adjusted. With its stock price currently about $47 a share, it trades for less than 10 times its FFO. That incredibly cheap valuation is why its monthly dividend yield is more than 7%.
The REIT faces headwinds from higher rates And lingering issues some of its theater tenants are facing after the pandemic. But it has put those issues in the past. For example, it finalized an expanded lease with a bankrupt theater tenant last year. Now it is been able to grow its portfolio, cash flow and dividend.
EPR properties currently expects to spend $200 million to $300 million this year on new real estate investments, which it will finance with post-dividend free cash flow and its strong balance sheet. It should be able to increase capital expenditures as interest rates fall. That should boost its earnings growth rate and the ability to increase its dividend in the future.
Cheap stocks are the driving force behind these high dividends revenues
WP Carey, Realty Income and EPR Properties are bargains these days that pay high-yielding dividends. That combination of yield and low valuation could allow these REITs to generate attractive total returns in the years ahead as interest rates eventually start with fall. That makes them look like great bargains right now before that catalyst takes effect.
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Matt DiLallo has positions in EPR Properties, Realty Income, and WP Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.
3 Incredibly Cheap, High Yield Dividend Stocks You Can Buy Now was originally published by The Motley Fool
