The S&P 500 Index currently yields a paltry 1.3%. That’s a very low number, but you can do much better if you delve into the index and pick good companies with relatively high returns. Three stocks that should be on your list as potential long-term investments UDR (NYSE:USD), T. Rowe Price (NASDAQ: TRW)And Real estate income (NYSE:O). This is why.
UDR provides housing, a basic need
Ultimately, UDR is a pretty boring real estate investment trust (REIT). It owns approximately 60,000 apartments in communities in both urban and rural areas. Notably, about 25% of rentals come from the country’s faster-growing Sunbelt region, 35% from the West Coast and 40% from the Northeast. It also has exposure to both luxury (A-level assets) and mid-range (B-level assets) apartment complexes. In other words, UDR is spreading its bets in an effort to create a portfolio that can survive the typical real estate cycle.
Right now, things are tough. A glut of new apartments has created a tough rental market, while interest rates have risen, driving up costs. Investors are concerned, causing the share price to fall and the dividend yield to rise to 4.2%. That’s near the highest level in the past decade, suggesting the UDR is currently on a sell-off. But here’s the interesting thing: UDR is telling investors very clearly that things will improve quickly because the number of new apartments opening for business will decline in the coming years. If that happens, Wall Street’s view of this REIT will likely improve significantly.
A tough business and no debt underpin T. Rowe Price’s future
If you’re looking for dividend stocks without a lot of volatility, you probably won’t like asset manager T. Rowe Price. While the customer base tends to be very sticky as investors prefer not to move assets as often, assets under management (AUM) are heavily influenced by market forces. And Wall Street can be quite volatile at times. But T. Rowe Price is ready for the ups and downs because the company has no long-term debt on its balance sheet.
The return here, at 4.2%, is also almost at its highest point in the past ten years. The reason is that investors are concerned about the shift that is taking place from mutual funds to cheaper Exchange Traded Funds (ETFs). This is a very real problem, but T. Rowe Price is not ignoring it. It offers ETFs and other investment products, such as alternative assets, that appear to have growth potential. The good news, as noted, is that customers tend to be sticky, so T. Rowe Price has plenty of time to turn its business around. And while you do this, you have the opportunity to collect a generous dividend yield.
Real estate income is the biggest and the best
When it comes to the net lease REIT niche, one name stands head and shoulders above all the others: Realty Income. (A net lease requires the tenant to pay most of the operating expenses at the property level.) In keeping with this theme, the REIT’s yield of 4.9% is near the highest level in the past decade. So, as with the other dividend stocks on this list, it appears that Realty Income is currently on a sell-off.
But the real draw is Realty Income’s scale, with more than 15,400 properties. In terms of market capitalization, it is more than three times the size of its next largest competitor. Add to that an investment grade-rated balance sheet, and Realty Income has privileged access to the capital markets. Lower costs of capital mean it can be aggressive on the acquisition front and still make profitable purchases. Although this is a slow and steady tortoise, now seems like a good time to consider jumping on board if you like to own the biggest and the best.
Three high-yield picks from the S&P 500 index
There’s nothing wrong with simply buying an index fund, but the S&P 500 is intended to be representative of the broader economy and thus not aimed at providing income to investors. If you’re focusing on income, you’ll probably want to choose from what amounts to a vetted list in the S&P 500. If you do, you’ll find that UDR, T. Rowe Price, and Realty Income are high-yield standouts. .
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
Bull Market Buys: 3 S&P 500 Dividend Stocks to Own for the Long Term was originally published by The Motley Fool
