For better or worse, dividends have fallen out of favor on Wall Street. Despite record profitability of companies, the flagship S&P500 Table of contents only has an average yield of 1.35%, as many managers now prefer to return value through buybacks rather than cash. That said, it’s still possible to find companies that stay true to their dividend traditions.
Let’s see why an investment of $10,000 in Real estate income (NYSE:O) or Phillip Morris International (NYSE: PM) could be a great source of sustainable income in the long run.
Real estate income
Founded in 1969, Realty Income is a real estate investment fund (REIT) specialized in leasing commercial real estate assets and returning the majority of profits to shareholders through a consistent dividend. The company has delivered an impressive compound annual total return of 13.6% since listing in 1994 and can continue to reward long-term investors due to the quality and diversification of its tenants.
Good tenants are key to any sustainable real estate business because they mean fewer headaches and more consistent income. Realty Income has mastered this side of its business by focusing on stable tenants like grocery stores, which make up the largest share of rent at 10% – ahead of convenience stores and dollar stores, which make up 9.5% and 6.5%, respectively . . These are reliable, recession-proof businesses that can usually pay their rent regardless of what happens in the economy.
Realty Income’s stock price has fallen about 18% over the past five years due to challenges such as rising interest rates, which can reduce demand for income-oriented stocks versus risk-free assets like the 2-year U.S. Treasury bond, which is now as much as a yields returns. 4.83%. But interest rates will probably not remain this high forever.
The dip appears to be a buying opportunity, as Realty Income’s focus on high-quality tenants will help the company return to its historical norm of market-beating total returns. Shares have a annual dividend yield of 5.73%, and the company has managed to grow its payout for 26 years in a row.
Phillip Morris International
The tobacco industry is a favorite of income-oriented investors because of its reliability. Nicotine is an addictive product, so customers often continue to buy it even in a challenging economy. Phillip Morris is protecting its business from regulatory risk through global diversification and a push into alternative tobacco products.
Founded in 2007 by a spin-off from the parent company, Altria Group, Phillip Morris was founded to maximize shareholder value by separating the company’s international operations from the frequent litigation and regulatory challenges faced by its U.S. operations.
With its focus on a variety of European, Asian and Latin American markets, Phillip Morris is protected against political risks in each specific jurisdiction. It is further diversifying its business through an ambitious move into alternative tobacco products.
As of the first quarter, smokeless tobacco products represented a whopping 39% of Philip Morris’ total net sales of $8.8 billion. This growth is guided from Iqos, a system that releases nicotine by heating tobacco instead of burning it. Phillip Morris plans to launch Iqos in the US market, with a wide rollout expected in 2025.
Phillip Morris boasts an impressive dividend with a yield of 5.22%. And the company has steadily increased its payout for 15 years in a row. Management also occasionally returns value to investors buy back shares, including a recent $7 billion buyback program that started in 2021. Buybacks can support stock appreciation by increasing the fundamental value of each stock relative to future earnings. So long-term investors have many ways to win with this stock.
Should you invest €1,000 in real estate income now?
Consider the following before purchasing shares in Realty Income:
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Will Ebiefung has positions in Realty Income. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
Do you have $10,000? 2 High-Yield Dividend Stocks to Buy and Hold Forever. was originally published by The Motley Fool
