It can be hard to look on the bright side when stocks are on a seemingly unending downward spiral. However, these sell-offs are often great opportunities for investors with long-term time horizons and some cash on the sidelines. That's especially true when it comes to investing in dividend-paying stocks. The lower a stock's price falls, the more its dividend yield rises.
Many high-quality dividend stocks have seen their share prices tumble in recent months, making them look even more attractive to income-focused investors. Three dividend payers that stand out as enticing buys right now are real estate investment trusts (REITs) Equity Residential (EQR 0.02%), Stag Industrial (STAG 0.57%), and STORE Capital (STOR).
More rental income
Shares of Equity Residential have tumbled more than 20% over the past month. That has pushed the apartment-focused residential REIT's dividend yield from 2.7% to 3.4%. That's more than double the dividend yield of the S&P 500.
While Equity Residential's stock price has fallen, its underlying business is thriving. The company recently reported excellent first-quarter results, driven by strong apartment demand, which boosted occupancy and rental rates. CEO Mark Parrell commented that "lease rates accelerated faster than we expected due to exceptionally strong demand." Meanwhile, the company is about to head into its primary leasing season. That puts it in an excellent position to grow its cash flows in the coming year.
The current strength of the apartment market recently led the REIT to boost its dividend by 3.7%. Equity Residential's payout is on rock-solid ground even at that higher payment level. It has a relatively low dividend payout ratio for a REIT and has one of the strongest balance sheets in the sector. With home prices and mortgage rates rising, apartment demand should remain strong, providing more support for its attractive dividend.
A big drop for a minor headwind
Shares of Stag Industrial have plunged more than 30% this year. That shellacking has driven the industrial REIT's dividend yield from 3% to start the year up to 4.5%.
One of the factors weighing on the REIT is the news that e-commerce giant Amazon (AMZN -0.35%) has more than enough warehouse capacity to meet its needs. While Amazon is STAG's largest tenant, the e-commerce giant only supplies 3.2% of its annual base rent, given the overall diversification of Stag's industrial portfolio. Meanwhile, even though Amazon has plenty of capacity, demand for industrial real estate remains strong because of the growing adoption of e-commerce, inventory management practice changes, and supply chain issues.
Because of those catalysts, Stag's buildings remain in high demand. Retention of existing tenants was a strong 58.4% in the first quarter, keeping occupancy high at 97.3% while driving double-digit rental rate growth. Meanwhile, the REIT continues to find attractive acquisition opportunities. These factors should enable Stag to continue growing its cash flow, putting its attractive dividend on an even firmer long-term foundation.
An eye-popping income stream
STORE Capital's stock price has tumbled almost 25% from its peak to start the year. That sell-off has boosted its dividend yield from 4.5% to 5.9%. That's nearly double the yield offered by the average REIT.
That lower share price comes even though STORE Capital is firing on all cylinders. The company recently locked up some low-cost debt despite rising interest rates, giving it more funds to buy income-producing profit-center real estate. STORE now expects to buy between $1.3 billion and $1.5 billion in properties this year, which will help grow its adjusted funds from operations by 6.3% to 8.3% per share. That's an acceleration from its 5.7% compound annual rate since its initial public offering (IPO) in 2014.
That growing rental income will enable STORE Capital to continue increasing its dividend. It gave its investors a 6.9% raise last year and has grown the payout at a 6.1% compound annual rate since its IPO.
A great time to add some more income to your portfolio
The stock market sell-off, while challenging, is providing income-focused investors with some compelling opportunities. Shares of several high-quality REITs have tumbled, boosting their dividend yields. That means investors can increase their income by scooping up shares of top-notch REITs like Equity Residential, Stag Industrial, and STORE Capital while they're on sale.