Brokerages' race to the bottom in trading fees has been a breakthrough in helping to make investing less cumbersome to newcomers. While high commissions used to be a costly obstacle for new investors and discouraged some from investing altogether, that's now less of an issue. In fact, a recent study by discount broker Charles Schwab found that 15% of current U.S. investors bought their first shares just last year.
Here are three smart dividend stock picks that new and experienced investors alike with an extra $200 laying around should consider buying.
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1. Realty Income: A REIT heavyweight
Investors looking for steady and rising dividend income should contemplate Realty Income (O 1.46%).
Realty Income is a real estate investment trust (REIT) that purchases single-tenant properties and leases them out to tenants via triple net lease contracts. Triple net lease contracts require a tenant to cover the three major expenses of owning a property -- property taxes, maintenance, and insurance. The tenant also is responsible for covering utility expenses and paying a base rent amount to the landlord each month.
Since Realty Income's tenants shoulder all of the key burdens that go with property ownership, Realty Income's business model has been remarkably consistent. Adjusted funds from operations (AFFO) per share have, as a result, grown 24 out of the past 25 years at a median rate of 5.1% annually.
Realty Income also has a great deal of earnings stability, which is due to the fact that the company's average remaining lease term is approximately nine years.
These factors have allowed Realty Income to raise its dividend for 26 consecutive years, which places the company among the highly regarded Dividend Aristocrats (members of the S&P 500 that have raised their dividends for at least 25 years straight).
And despite its status as the 10th largest REIT in the world, Realty Income should continue growing its AFFO per share around 5% annually for the foreseeable future. This is because, while Realty Income has operated in the U.S. ever since its founding in 1969, the company just recently entered the multitrillion-dollar European real estate market. Realty Income's continued expansion into a market that's much larger and less saturated than the U.S. should drive growth for many years.
And for merely 19 times Realty Income's AFFO per share estimates this year, investors can lock up a 4.1% dividend yield that's sure to grow in the years ahead.
At recent prices just under $70 a share, a $200 investment would be almost enough to purchase three shares of Realty Income.
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2. WEC Energy Group: A Midwestern utility
The next quality dividend stock that investors should evaluate for their portfolio is WEC Energy Group (WEC 1.02%), which serves 4.6 million customers in Wisconsin, Illinois, Michigan, and Minnesota.
WEC Energy Group is a utility that's well balanced between regulated electric and regulated natural gas revenue, deriving about half its revenue from each. The company plans on investing $16.1 billion through 2025 to modernize its existing infrastructure with renewables and more efficient technology, as well as expand its customer base with new infrastructure. WEC's commitment to efficiency is also what helped it boast one of the lowest non-fuel operating and maintenance (O&M) costs in its industry per megawatt hour (MWh) at $15.30 in 2019. This is well below the utility industry average of $21.51.
WEC delivered 7% annual growth in earnings per share (EPS) over the past five years, and it's expecting growth close to that going forward, at the top end of a 5% to 7% range. This seems realistic, especially as the company adds new customers. Its dividend also looks safe, based on the fact that its forecasted payout ratio for this year will be in the high 60% range, which falls within its long-term payout ratio target of 65% to 70%. (The payout ratio shows how much of a company's earnings are going to pay the dividend; lower is better, but some mature industries, like utilities, can sustain higher levels.) WEC Energy Group's 3% yield is in line with its 13-year median yield of 3%, which suggests that the stock is trading at a fair price.
Investors with an extra $200 would be able to purchase a couple of shares of WEC Energy at the current price around $90 a share.
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3. T. Rowe Price Group: A powerful asset manager
The final dividend stock to consider for your portfolio is asset manager T. Rowe Price Group (TROW -2.40%).
T. Rowe Price earns the vast majority of its revenue through investment advisory fees, which are based on its assets under management (AUM). As of last month, T. Rowe Price boasted $1.61 trillion in AUM. This makes it one of the largest asset managers in the world, which is a key advantage over smaller competitors.
The firm's strong reputation helps it maintain strong net inflows into its variety of funds. When paired with gradual equity market gains, this leads to an increase in AUM and investment advisory fees over time. That's why analysts expect T. Rowe Price to deliver 16% annual earnings growth over the next five years. Compared to its price-to-earnings ratio around 15.5, T. Rowe Price offers investors plenty of growth at a cheap price. And the company possessed no long-term debt, compared to more than $3.5 billion in cash and cash equivalents, at the end of June.
T. Rowe Price's promising growth prospects, strong balance sheet, and low payout ratio make the 2.3% yield safe and position it for future growth.
If you have $200 to invest, you'll be able to buy one shares of T. Rowe Price Group at recent prices around $197.
