Whether you're a new investor or someone who's been putting their money to work on Wall Street for decades, you've been given a not-so-subtle reminder that corrections and bear markets are a normal part of the investing cycle. Since the year began, the broad-based S&P 500 and iconic Dow Jones Industrial Average both dropped into correction territory, while the tech-focused Nasdaq Composite briefly dipped into a bear market.
Although big declines in the major indexes can be worrisome, all notable moves lower in the market represent an opportunity for patient investors to pounce. That's because every notable drop in the major indexes has eventually been cleared away by a bull market rally.
Perhaps the smartest move for investors to consider is buying dividend stocks. Companies that pay a regular dividend have a rich history of outperforming non-dividend payers.
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What's more, you don't need a mountain of capital to begin building wealth with income stocks. Since most online brokerages ditched commission fees and minimum deposit requirements, any amount of cash -- even $300 -- can be the perfect amount to invest.
With the market selling off, the following three dividend stocks stand out as no-brainer buys with $300.
U.S. Bancorp: 3.5% yield
The first income stock that would be an exceptionally smart buy with $300 during the market sell-off is regional bank U.S. Bancorp (USB 1.56%). This is the parent company of the more familiar U.S. Bank.
Like virtually all financial stocks, banks are cyclical businesses. They thrive when the U.S. economy is expanding, and they tend to struggle with higher loan delinquencies when recessions arise. But what's important to note is that periods of economic expansion last considerably longer than recessions. Despite emotions weighing on the banking industry anytime the winds of recession start blowing, this is an industry that's set up to take advantage of the natural expansion of the U.S. and global economy over time.
One of the reasons U.S. Bancorp is one of the nation's most-successful bank stocks is its aversion to risky investments. Whereas most money-center banks found themselves in a bind after chasing riskier derivative investments in the mid-to-late 2000s, U.S. Bancorp has focused on the bread-and-butter of banking -- i.e., growing its loans and deposits. As a result, U.S. Bancorp has consistently had one of the highest return on assets in the banking industry.
Furthermore, with the Federal Reserve intent on raising lending rates multiple times this year in an effort to get inflation under control, U.S. Bancorp is perfectly positioned to generate higher net interest income from its variable-rate outstanding loans.
But possibly the best thing about U.S. Bancorp is the strong digital engagement of its customers. As of Nov. 30, 2021, 80% of its active customers were banking digitally, with 66% of loan sales completed either online or via mobile app. That's up from 45% of loan sales completed digitally at the beginning of 2020. Digital transactions are substantially more cost-effective for banks than teller-and-phone-based interactions, which has allowed the company to consolidate its branches and lower its operating expenses.
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Innovative Industrial Properties: 3.7% yield
Another no-brainer dividend stock to buy with $300 during the broad-market pullback is Innovative Industrial Properties (IIPR 0.06%).
Innovative Industrial Properties, or IIP for short, is a cannabis-focused real estate investment trust. In simple terms, it's a company that purchases marijuana cultivation and processing facilities and seeks to lease these properties for extended periods of time. Although acquiring new properties is behind most of IIP's revenue and profit growth in recent years, the company does have the ability to generate modest organic growth. Its leases allow for modest inflation-based rental increases each year, and the company collects a 1.5% property management fee that's tied to the base annual rental rate.
What's so intriguing about IIP's operating model is the stability of its operating cash flow. As of April 7, 2022, IIP owned 107 properties spanning roughly 8 million square feet of rentable space in 19 states. The company has tenants for all 107 of its properties, with a weighted-average lease length of 16.4 years. There's a really good chance IIP will net a complete payback on its investments in less than half this time.
Something else working in Innovative Industrial Properties' favor is the lack of cannabis banking reform on Capitol Hill. Without significant reform, pot companies have limited access to basic banking services at financial institutions. This has allowed IIP's sale-leaseback program to thrive. As the name suggests, IIP purchases properties for cash and immediately leases them back to the seller. This arrangement boosts the balance sheets of cash-needy cannabis companies while netting IIP long-term tenants.
With cannabis-focused analytics firm BDSA calling for U.S. weed sales to nearly double to $46 billion by 2026, it's pretty clear that IIP still has plenty of opportunity to acquire and lease lucrative cultivation and processing facilities. Tack on quarterly dividend growth of 1,067% since June 2017, and you have a recipe for wealth creation.
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American Eagle Outfitters: 4.4% yield
A third no-brainer dividend stock investors can confidently buy with $300 during the market sell-off is specialty retailer American Eagle Outfitters (AEO -2.20%).
Like most clothing-and-accessories-based retailers, American Eagle has been hindered by supply chain challenges. In particular, the company paid a lot more to fly in merchandise during the fourth quarter as a result of factories closing in Vietnam. These higher freight costs may well persist throughout 2022. But short-term supply challenges shouldn't chase investors away from a retailer that's proved time and again it's a winner.
Most people are probably familiar with American Eagle Outfitters' mall-based, teen-focused retail stores. The success of these stores is based on prudent inventory management (i.e., items that don't sell are quickly moved, which helps push more full-priced sales), and hitting the sweet spot on pricing. It's no secret that teens and young adults love brand-name merchandise. With American Eagle, buyers can get that brand-name appeal without the nosebleed prices found at some of its competitors (ahem, Abercrombie & Fitch).
But there's more going on with this company than you might realize. For instance, the pandemic coerced American Eagle Outfitters to up its direct-to-consumer investments. The result: the company's online revenue in fiscal 2021 (ended Jan. 29, 2022) was 46% higher than it was in fiscal 2019 (i.e., before the pandemic began).
Additionally, American Eagle's intimate apparel brand, Aerie, has been growing like wildfire. Aerie sales surged 39% last year and are up 72% from where they were prior to the start of the pandemic. Understanding the strength of the Aerie brand, American Eagle's management team announced plans in early 2021 to increase the number of Aerie locations from around 350 to between 500 and 600 by 2023.
Currently valued at a mere 6 times Wall Street's forward-year earnings forecast, American Eagle Outfitters looks like the perfect dividend stock for investors to pluck from the sale rack.
