In an age of rock-bottom interest rates, dividend stocks hold an appeal for many investors. Not only does the yield on those cash payouts typically beat what shareholders would earn in bank interest, but we can benefit from stock gains, too.
However, many investors also want to beat the average 1.7% yield of the S&P 500. To realize such potential, they may seek out relatively unknown dividend stocks that have started to build a track record for gains. One option is real estate investment trusts (REITs), since they pay out at least 90% of their net income in the form of dividends. Other investors may turn to stocks that have built a track record of steadily rising dividends.
Finding such opportunities is not always easy. Nonetheless, investors may find such income and growth gains in stocks such as Global Medical REIT (GMRE +1.14%), Innovative Industrial Properties (IIPR +14.03%), and Prudential Financial (PRU +2.68%).
Global Medical REIT
Global Medical REIT acquires and develops healthcare facilities. Its portfolio consists of 122 buildings scattered across the U.S. Most of the portfolio consists of specialty hospitals, medical office buildings, rehab facilities, and surgery centers.
The company benefits from a tremendous demographic tailwind. Baby boomers continue to age into Medicare at a rate of about 10,000 per day, further stoking the demand for healthcare facilities. Both the increases and additional investments have taken Global Medical's portfolio from $93 million to more than $1.06 billion over the last four years.
Image source: Getty Images.
Also, this trend continues to boost both the company's top and bottom lines. In the most recent quarter, revenue rose 38% from the same quarter last year. Adjusted funds from operations (the REIT equivalent of earnings) increased by 21% during the same period. (Aside from a one-time management internalization expense not included in the adjusted number, increases in the company's property portfolio led to rising expenses during the quarter.)
Amid the struggles through the COVID-19 pandemic, Global Medical stock has risen by only about 7% this year. Nonetheless, it has increased by around 50% over the last three years.
Furthermore, investors also receive an annual dividend of $0.80 per share, amounting to a yield of approximately 5.7%. Investors should also note that the company has experienced few rent collection issues despite the pandemic. As Global Medical continues to acquire and lease new facilities, both the stock and the dividend could move higher over time.
Innovative Industrial Properties
Innovative Industrial is one of the few REITs designed for the needs of the cannabis industry. It owns industrial and greenhouse properties tailored for marijuana production.
Due to Schedule I restrictions, banks cannot loan money to cannabis producers. Hence, Innovative Industrial helps to fund this capital-starved industry by buying property from growers and then leasing it back, giving cannabis companies the financing to move forward with production.
This model has led to the stock price more than doubling since the year began. Also, whether true or not, some perceive a Biden administration as more friendly to the cannabis industry. Moreover, Arizona, Montana, New Jersey, and South Dakota legalized weed for recreational use in the recent November elections. Such trends have worked in the company's favor.
Additionally, Innovative Industrial's time under the grow lights yielded massive growth even before these measures passed. In the most recent quarter, the company grew revenue by 197% from year-ago levels. This led to adjusted funds from operations income tripling over the same period. Also, its annual dividend of $4.68 per share yields around 3%. The company has hiked the payout twice this year.
Moreover, despite this performance, the stock trades at a price-to-FFO ratio of about 34. That's reasonable for a company with such impressive growth today and exciting prospects tomorrow.
Prudential Financial
You may know the name Prudential from all the company's ad spending. "The Rock," as the insurer and financial manager likes to bill itself, sells life insurance and annuities. It also provides asset management, mutual funds, and pension and retirement-related investments.
The company claims more than $1.4 trillion in assets under management. It also insures more than $3.7 trillion worth of life insurance policies.
Admittedly, Prudential has not grown as quickly as some dividend stocks. In the most recent quarter, net income increased by just under 8% from the same quarter last year. It is also still recovering from the investment losses it suffered amid the COVID-19 pandemic in the first two quarters of the year.
However, the company made investment gains in the third quarter and experienced growth in its international business. Together, these businesses accounted for more than three-fourths of the company's operating income.
This also helped the forward P/E ratio rise to just under 7 as it continues its recovery from the massive drop in February and March.
Finally, investors should also note the dividend performance. Its current yearly payout of $4.40 per share yields approximately 5.9%. Further, the company has hiked the dividend every year since 2009. Given the company's quick recovery from the early year slump, investors can feel confident that this trend should continue.
