When it comes to great dividend stocks, there are a few things to look for. A high yield is great, but if you can combine a high yield with stability and lots of room to grow over the long run, that's the trifecta. And this is a pretty rare combination.
With that in mind, here are three dividend stocks to put on your radar, all of which yield more than 4%, have reasonably low risk, and could produce excellent growth and income in your portfolio for decades to come.
A 5% yielder with a trillion-dollar market opportunity
STORE Capital (STOR 0.28%) was one of my favorite income stocks before the COVID-19 pandemic. I like it even more now that it's about 25% lower than where it started the year.
To be fair, there's a reason for the decline. About one-third of STORE's properties are occupied by tenants in industries that have been severely impacted by COVID-19. Movie theaters are an obvious trouble spot, and restaurants, day care centers, and fitness centers are some other major STORE tenant types.
However, virtually all (98%) of STORE Capital's tenants are now open for business, and the company reported that it collected 88% of its billed September rent. While this isn't a stellar rent collection rate, it's important to note that the company earned more than enough to cover its dividend in the second quarter when it was much worse. And with the worst effects of the pandemic behind it, STORE is ready to get back into growth mode. In short, this is a fantastic income stock that doesn't deserve the 25% haircut it has received this year.
A beaten-down bank stock that will be fine
The financial sector has been one of the market's worst performers in 2020, and banks that focus exclusively on consumer banking (as opposed to investment banking) have been hit harder than most. Traditionally one of the most expensive bank stocks in the market in terms of price-to-book valuation, U.S. Bancorp (USB 1.79%) is trading at a level not seen since the depths of the financial crisis over a decade ago.
Why have consumer banks performed so poorly? The simple explanation is that the pandemic has created the potential for billions of dollars in losses if customers start having trouble paying back their loans, and the record-low interest-rate environment isn't exactly a great profit environment for banks. And while investment banking tends to perform better during turbulent markets, consumer banks like U.S. Bancorp don't have this to help offset the negative effects.
However, U.S. Bancorp has an excellent track record of responsible lending, efficient operations, and fantastic returns on equity. In fact, the bank was one of the few whose earnings stayed positive during the financial crisis years. This is a great opportunity to add an incredible institution (and its 4%-plus yield) at a big discount.
A recession-resistant business with long-tailed growth tailwinds
Unlike the other two companies mentioned here, Physicians Realty Trust isn't trading for a big discount to its pre-COVID valuation, and for good reason. Medical offices are about the most resilient type of commercial real estate there is. Healthcare is an essential service, and tenants lease medical offices for long periods. In fact, the company has collected virtually all of its expected rent throughout the pandemic.
Physicians Realty Trust currently owns about $5 billion worth of medical office real estate and estimates its addressable market opportunity to be between $250 billion and $300 billion in size, so there's a lot of growth runway ahead. This is a rock-solid REIT with a 5% yield and tremendous growth potential in the years ahead.
Great long-term income investments
If you're looking for income over the next year or so, keep looking. These stocks are excellent income investments, but only if your time horizon is five years or more. There are simply too many things that can move these stock prices over the short run, including many catalysts that have nothing to do with the strength of the underlying businesses.
I have absolutely no idea what these stocks will do over the next week, month, or year. But I'm confident that their dividends are safe and that their long-term strategies will help deliver excellent total returns for years, if not decades, to come.