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3 Best Dividend Stocks to Buy With $500

By Kody Kester – Nov 11, 2021 at 7:25AM

Key Points

  • Consumers' increased use of mobile data is a huge plus for Crown Castle.
  • STORE Capital owns a diversified portfolio of service-oriented and manufacturing tenants.
  • Prudential is a leading asset manager and insurer benefitting from steadily rising equity markets.

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These three dividend stocks each offer safe and growing yields in excess of 3%.

A great thing about being an investor in the current era is that you don't need much cash to begin your investing journey.

Commission-free stock trades managed by brokers like Robinhood Markets and the increased use of fractional shares have radically changed the industry in the last few years. These changes have allowed investors with even small amounts of uncommitted funds to begin buying equities and/or diversifying their portfolios without fear of commissions eating into their returns or not being able to buy certain popular stocks because the per-share price has gotten too high.

For income investors with only $500 available to put toward stock purchases, there are now some great options. Here are three stocks to consider that can boost your dividend-yielding holdings.

A sunset occurs behind a 5G cell tower.

Image source: Getty Images.

1. Crown Castle: A way to play rapidly growing data consumption

Crown Castle International (CCI 2.32%) is the second-largest cell tower company in the world and sports a market cap of $78 billion. The real estate investment trust (REIT) owns over 40,000 cell towers in the U.S., and it leases the majority of them to large telecoms such as Verizon Communications using 10-year leases with 3% annual escalators.

In an information-driven economy, consumers depend heavily on remote internet access for both personal use and business. The average monthly mobile wireless data usage of North American households is expected to quadruple from 11.8 gigabytes last year to 49 gigabytes by 2026. This should translate into very robust demand for the companies that provide the infrastructure to make this data consumption possible. And that should be a significant growth catalyst for Crown Castle.

The steady (and growing) income Crown Castle expects is also why it is targeting 7% to 8% annual dividend growth for the foreseeable future. That target seems realistic when considering that its payout has grown at a 9% clip annually since the company began offering a dividend in 2014. This is an especially attractive growth rate considering that the stock offers investors a market-beating 3.3% dividend yield at its current $180 share price.

Crown Castle stock isn't cheap, trading at 24 times next year's guidance for adjusted funds from operations (AFFO) per share. But it also isn't priced out of reach for dividend growth investors looking to capitalize on the infrastructure that the company provides to meet the rising demand for mobile data.

A waitress disinfects tables during the COVID-19 pandemic.

Image source: Getty Images.

2. STORE Capital: Warren Buffett's only real estate investment trust

STORE Capital (STOR) is another REIT with a solid dividend. The company owns 2,788 properties diversified across a range of industries throughout the U.S. It derives 81% of its annualized base rent (ABR) from tenants in service and service-oriented retail industries. In addition, the services these tenants offer include things like early childhood education and auto repair, which shields them from e-commerce threats. The remaining 19% of STORE Capital's ABR is generated from manufacturing essential to the everyday lives of consumers, like metal fabrication and food processing.

After withstanding a challenging 2020 in which AFFO per share declined 8% year over year to $1.83, STORE Capital expects that metric will fully rebound this year to a midpoint of $1.99. Better yet, the company anticipates that its AFFO per share will increase 9.3% next year to a midpoint of $2.175.

This explains why STORE's board of directors recently voted to increase the quarterly dividend 6.9% to $0.385 per share. As a testament to the company's strength, it is the only REIT in the portfolio of Warren Buffett's Berkshire Hathaway.

Luckily for investors looking to open a position in this wonderful REIT, the market doesn't seem to fully appreciate the stock. But at $35 a share, it's trading at less than 16 times the guidance for next year's AFFO per share while offering a well-covered 4.4% dividend yield. This makes it a buy for dividend growth investors looking to raise their exposure to the real estate sector.

Numerous $100 U.S. banknotes stacked over each other.

Image source: Getty Images.

3. Prudential: A massive asset manager

As one of the largest asset managers in the world with $1.73 trillion under management, Prudential Financial (PRU 1.64%) serves pension funds and insurance companies (i.e., institutional investors), as well as individual retail investors. One of the most effective ways for investors to benefit from the long-term upward trajectory of financial markets is to own reputable asset managers, which is what makes Prudential a solid dividend stock.

While equity markets are often volatile and difficult to predict in the short term, it's a near guarantee that markets will be higher in 10 to 20 years. Since Prudential generates its income from asset-based fees (and life and disability insurance premiums), this bodes well for its long-term fundamentals as long as its reputation as an asset manager remains intact.

At $111 a share, it has a 4.2% dividend yield at a bargain-bin price of 8 times this year's forecast for earnings per share. That makes it an ideal high-yield, deep-value dividend growth stock

Kody Kester owns shares of Prudential Financial, STORE Capital, and Verizon Communications. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Crown Castle International. The Motley Fool recommends STORE Capital and Verizon Communications and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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