As part of the $2 trillion economic stimulus package, formally known as the CARES Act, the federal government will be distributing one-time cash payments to most U.S. households.
To be sure, if you've lost income as a result of the terrible COVID-19 pandemic, or if you have current financial needs, you should certainly use your stimulus payment to help you and your family weather the storm. On the other hand, if your income hasn't been interrupted and it's practical to invest your stimulus payment, now could be a great time to put that money to work for your future.
With that in mind, here's why Realty Income (O +0.26%), Mastercard (MA 0.46%), and Square (SQ 1.28%) could be three excellent choices that could eventually multiply your stimulus check several times over.
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Bulletproof income and lots of room to grow
Realty Income is a real estate investment trust, or REIT, that specializes in single-tenant properties, particularly those occupied by retail tenants. And while retail has certainly been one of the worst performing parts of the U.S. economy, the majority of Realty Income's tenants are "essential businesses" that are still open for business. Top tenants include Walgreens, 7-Eleven, Dollar General, Walmart, CVS, Kroger, and Home Depot, just to name a few.
Some of Realty Income's tenants are likely to suffer -- for example, movie theaters, fitness centers, and restaurants combine for just under one-fourth of the portfolio. But all of Realty Income's tenants are on long-term leases, and most are high-quality companies that should make it through the pandemic.
Realty Income's stock price has lost nearly half of its value since its mid-February high, and now yields more than 6.4%. The company has increased its dividend for the past 90 quarters in a row, and has an outstanding history of producing market-beating total returns for investors.
Don't let a slowdown in consumer spending make you lose sight of the big picture
It's not surprising to see Mastercard down more than 30% over the past month and a half. After all, the company makes the bulk of its money from processing payments and collecting a small percentage of the transaction volume that flows through its network.
There's no doubt consumer spending is going to suffer during this recession, especially with so many American businesses shut down indefinitely. The company's revenue for at least the first and second quarters of 2020 will likely be ugly.
However, Mastercard still has a great deal of growth runway ahead of it and should be able to get back on track nicely as the economy rebounds. The majority of payment transactions around the world still take place in cash, and the trend toward a cashless economy should cause Mastercard's payment volume to steadily rise for years to come. And the opportunities in cross-border money transfers are enormous. With a lack of competitive pressures and tons of room for cashless payments to grow, Mastercard could be an excellent long-term bargain right now.
A small business and consumer finance ecosystem
Fintech company Square is trading for less than half of its all-time highs, and it's easy to understand why. Square's core business is to serve small businesses, many of which are closed and struggling to survive right now. Its Square Capital lending platform could see customers unable to pay back loans, and even its Cash App could suffer as people spend and send less money.
Having said that, Square has done a fantastic job of growing its business, and while this could certainly produce lousy 2020 numbers, the company's long-term opportunity is huge. Square's core payment processing business is seeing more than $100 billion in annual payment volume, the Square Capital business lending platform has been very successful and with the company's recently granted bank charter application, there's even more room to grow. Plus, the Cash App has evolved from a simple person-to-person payments platform into a multi-featured financial platform with 24 million active users.
However, the growth could be just getting started. Square estimates that it has an $85 billion addressable market opportunity in its U.S. merchant business, and that doesn't even include the international potential or the $60 billion addressable market it sees through individuals. In all, Square estimates that it has captured less than 3% of its market opportunity. And with a solid balance sheet, the company should have no issues making it through the tough times.
Invest for the long term
While all three of these stocks are excellent long-term opportunities, it's important to realize that there could still be tremendous volatility until the COVID-19 pandemic subsides and life can start to get back to normal. If the pandemic drags on for longer than expected, we could certainly see further downward pressure from here. So, if you invest, be prepared for a bit of a roller coaster ride in the near term, but when you look back a decade or two from now, I'm confident you'll be glad you decided to add them to your portfolio.
