3 dividend stocks to buy on sale
With the stock market at high levels (even taking recent selloffs into account), it’s hard to find stocks for sale. Earnings multiples are stretched and interest rates are rising, which is usually bad news for the stock market. It is at times like this that investors most need viable alternatives.
These options to consider should include a review of three real estate investment trusts (REITs) that are strong companies in disadvantaged sectors. All have been hit hard by the coronavirus pandemic, but all are also in the final stages of recovery.
1. New Residential Investment: Its dividend yields 9%
New Residential (NYSE:NRZ) is a mortgage REIT that has a number of different businesses, including mortgage origination, mortgage servicing and mortgage investments. Mortgage REITs struggled as markets sense that the Fed’s change of stance on interest rate hikes will be negative for mortgage-backed securities. This is generally true; however, not all mortgage-backed securities behave the same.
The most interest rate sensitive mortgage-backed securities are those backed by the US government. These are the securities that the Federal Reserve bought. Although New Residential owns them, it also owns many mortgages that are not guaranteed by the government. These securities pay a higher interest rate and are much less affected by interest rate fluctuations. Finally, New Residential holds numerous mortgage servicing rights, the value of which increases as rates rise. It also manages mortgages for other lenders, which generates fee income.
In October, New Residential increased its quarterly dividend by five cents per share to $0.25 per share. This gives the company a dividend yield of 9%. Mortgage REITs and mortgage originators are very unpopular at the moment, however, new residential may be more suited to the upcoming interest rate environment.
2. SL Green Realty: Focus on New York City Properties
SL Green Realty (NYSE: SLG) is an office REIT focused on New York City properties. It’s Manhattan’s largest office landlord, with 61 properties and just over 28 million square feet of office space. Like most REITs, SL Green has been reeling from the pandemic as many businesses struggled and occupancy numbers plummeted. Second, many SL Green properties had retail space that struggled to generate rents as tourism disappeared and consumer spending declined.
Since SL Green operates in some of the most expensive office space in the world, investors fear that companies will reduce office space and/or leave Manhattan for the suburbs. The fear of a massive work-from-home movement, however, is probably overstated; the employees love it, but the bosses don’t. While the omicron variant has pushed back full office reopenings, it’s only a matter of time.
SL Green pays a monthly dividend of $0.303 per share, giving the company a dividend yield of 4.5%. It also paid a special dividend in December of $2.75 per share, which, combined, represents a yield of 7.8%. Manhattan office space isn’t going anywhere, and SL Green is paying a decent dividend while you wait.
3. Tanger Factory Outlet Centers: Back in vogue
Tangier Factory Outlet Centers (NYSE: SKT) is a shopping center operator and is nearing the end of a multi-year turnaround. Like most retail REITs that focus on consumer discretionary products, the company has been leveled by COVID-19 and retail bankruptcies. The company was heavily in debt to begin with, and the pandemic nearly pushed it over the edge.
In 2020, Tanger suspended its quarterly dividend; however, it reinstated it in 2021. The dividend is lower than it was before the pandemic, but the company just increased it in October, and it now yields 3.8%. The company reported that traffic in the third quarter of 2021 was more or less where it was before the pandemic. Tangier may have had a near-death experience, but it looks like she’s turned the corner.
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