2 Cheap Dividend Stocks to Buy in 2014

Shares of REITs have taken a plunge this year due to fear of an interest rate hike. It's time to pick up REITs while their cheap.

Jan 7, 2014 at 9:27AM

Dividend stocks (and even REITs) were having a great 2013 until May 22nd. The Dow Jones Composite All REIT index was up 16%, but then it all came crashing down. Was it justified for REITs to crash because of taper tantrum?

Screen Shot Image courtesy of Google Finance .

The cause
During May's Federal Open Market Committee meeting, Fed Chairman Ben Bernanke made comments suggesting that the Fed's QE (Quantitative Easing) could be reduced in the near future. Investors, judging by the REIT Index's reaction, assumed tapering would be accomplished through a combination of interest rate hikes and other means that would hurt REITs.

In the last seven months, the Dow Jones Composite All REIT index lost 16%, erasing all gains from the first part of 2013. As aforementioned, REITs would be hardest hit by the interest rate hike that investors think is imminent. I don't believe more interest rate jumps are on the way. Janet Yellen, who will become the new Federal Reserve chairperson this February, said she supports "lower for longer (interest rates)."

Two REITs for 2014
National Retail Properties (NYSE:NNN) is a triple-net lease mortgage REIT. "Triple net" means the tenant of the property is responsible for insurance, maintenance, and property taxes. That means if anything goes wrong on the property (e.g., sewage issues), the tenant is responsible for fixing it.


National Retail Properties' Management Team.

The triple-net lease structure ensures National Retail can have very stable income because it shifts many of the risks associated with owning property onto the occupant. National Retail Properties currently has a 98% occupancy rate for its properties. It also yields 5% and has increased its dividend 24 years in a row.

In National Retail Properties' third-quarter earnings report, CEO Craig Macnab stressed that the company was avoiding investing in any properties that do not have contractual rental growth.

Macnab also highlighted that National Retail Properties invested $90 million to acquire 35 more properties with an initial cash yield of approximately 7.7%. When the rental growth from these properties kicks in, it will receive an average yield from these acquisitions approaching 9%. National Retail Properties' strong management and balance sheet make it a great investment opportunity.

Realty Income Corp (NYSE:O) owns properties in the United States and Puerto Rico. It's also engaged in the triple-net lease industry. Realty Income has negotiated rent increases on most of its properties to ensure the company has room to increase dividends.

Realty Income Corp has paid 520 consecutive monthly dividends. Yes, 520 straight.
It has has 74 total dividend increases and 65 consecutive quarterly increases. It currently boasts a 5.9% dividend yield. The stock took a beating this year, with shares down almost 7%.

Record of success. Source: Realty Income

In the third quarter, Realty Income reported a 70% revenue increase along with an incredible 98% occupancy rate for its properties. John Case, Realty Income's CEO, said he is very comfortable with the company's third-quarter performance and is confident it can grow through its numerous acquisitions this year. 
Realty Income should be able to continue raising its dividends thanks to Sumit Roy. Realty Income hired Sumit Roy about three years ago, and he's been the brains behind all of the company's recent acquisitions.
Sumit had a great career at UBS before coming to Realty Income. While at UBS, he was responsible for over $57 billion in real estate capital markets and advisory transactions. With this Chicago Booth-educated investment banker running their acquisitions, investors can be sure the REIT will grow at a blistering pace.
Foolish takeaway
The "taper tantrum" caused REITs to take a plunge in 2013. Now that 2014 is here, it's a great time for investors to pick them up on the cheap. REITs give investors an easy way to get exposure to the real estate market while still remaining liquid.

And with Janet Yellen getting ready to lead the Fed, investors don't need to worry about an interest rate hike anytime soon.

More great dividend stocks
Dividend stocks, like well-managed REITs, can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Fool contributor Jesse Atlas has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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