When it comes to buying dividend stocks, many investors look at the dividend yield. A company paying a high yield on its dividends could entice you, but before jumping in you need to make sure that the company can maintain payments at that level. Sometimes, a high yield can indicate a company is about to cut its payout.
Here's some information about two companies that maintain secure dividends as part of their operations and are currently offering investors a yield greater than 4%. Let's see if these two stocks might be right for your portfolio.
1. Federal Realty Investment Trust
Federal Realty Investment Trust (FRT) is a real estate investment trust (REIT) that owns retail and mixed-use properties that are mostly located in cities. Its properties are located in markets with high barriers to entry and that cater to wealthy and dense populations. It has built a reputation for investing in its assets, building in stages, and growing its operations gradually to keep them desirable.
With the coronavirus pandemic causing governments to force temporary business shutdowns, issue stay-at-home orders, and institute social-distancing guidelines, last year was challenging for the company. Despite the challenges, Federal Realty continued its remarkable dividend streak. When the board of directors raised the quarterly payment by a penny to $1.06 per share, that marked the company's 53rd straight year of increasing its dividend payout.
This move reaffirmed the company's status as a Dividend King, which is a company that has raised its dividend consistently for at least 50 straight years. That puts Federal Realty in an elite group and is considered an indicator of the company's trustworthiness as a dividend provider for its shareholders. At the present payment rate and stock price, Federal Realty's dividend yield is 4.8%.
Things are looking up for the company as rent collections improved in the third quarter while the percentage of leased properties only dipped modestly. Its prospects for 2021 appear brighter as governments and companies continue distributing various coronavirus vaccines.
2. Realty Income
Realty Income (O 1.88%) is a REIT that has been in existence for more than half a century. Most of its property portfolio consists of 6,500-plus freestanding retail properties leased to about 600 tenants using long-term net-lease agreements. It manages risk using rental agreements where the tenant agrees to cover property taxes, insurance, and most maintenance costs. Its clients are a diverse group of large, well-established retailers. Realty Income's top 20 tenants account for 53% of its annual rent and include companies like Walgreens Boots Alliance and Dollar General.
With its tenant base comprised largely of those that sell everyday items, Realty Income has held its own during the pandemic. In the third quarter, it collected about 93% of the rent due, and occupancy remained high at 98.6%.
If more frequent payments appeal to you, Realty Income pays monthly dividends. And with over 25 years of consistently raising its payments on an annual basis, the company is a Dividend Aristocrat. It also typically raises the payout multiple times in a year. In January, the company started paying $0.235 per share each month, up from $0.234. Realty Income's dividend yield is currently 4.8%.
Consistency is important
REITs are typically good income investments since they have to pay out at least 90% of their taxable profit as dividends. The key is to pick ones that will keep doing well over different economic environments to ensure that the companies won't have to cut the dividends. These two have nice yields, and despite having a large concentration of retail tenants, have set themselves up for future success.