With the Federal Reserve aggressively raising interest rates, Russia's ongoing invasion of Ukraine, and the possibility of a recession or stagflation, it's easy to see why the market has been and could continue to be volatile. That said, all market sell-offs present the opportunity to find stocks trading at a discount.
In the case of dividend stocks, lower stock prices present the opportunity to find higher yields, which leads to more passive income. Dividend-paying stocks can also create more stable streams of income amid the volatility. Here are three stocks that tend to fly under the radar but can make investors boatloads of passive income.
1. STORE Capital Corp
As a real estate investment trust (REIT), which receives special tax exemptions, STORE Capital Corp (STOR) must pay out at least 90% of its annual taxable income in dividends to qualify for the special designation. STORE has an extremely attractive annual dividend yield of 6%.
The company focuses on triple-net lease single-tenant (STORE) real estate, which means it buys properties from business owners and then leases the properties back to those same owners. The business owners are then responsible for the upkeep and covering other expenses like renovations, insurance, property taxes, and other expenses. This model makes STOREs' leases less risky, and the company also has a very diverse portfolio of properties. The company went public in 2014 and has paid and raised its dividend every year since.
2. Sun Life Financial
Sun Life Financial (SLF 0.54%) is a large Canadian life insurance company that paid out $18.7 billion of gross claims and benefits in 2021. The company also runs a large asset and wealth management business that had $1.35 trillion in assets under management at the end of 2021.
Sun Life has experienced some headwinds and elevated payouts due a surge in mortality rates, particularly in the U.S. because of COVID-19. But management on its latest quarterly earnings call said deaths are now on the decline, which should improve the business. Additionally, the company will be able to reprice insurance policies to offset some of the pain from the higher mortality rate, as well as general inflationary pressures.
Sun Life currently has an annual dividend yield of 4.65%, and it recently raised the dividend by more than 4.5%. The company has long had strong levels of capital and targets a dividend payout ratio of 40% to 50%. It's currently only at about a 35% payout ratio, so there is room to keep raising the dividend. Sun Life has paid a dividend every year dating back to 2000 and raised the payout consecutively since 2014.
3. The Bank of N.T. Butterfield & Son Limited
The Bank of N.T. Butterfield & Son (NTB 0.63%) has roughly 30% of the deposit market in Bermuda and the Cayman Islands. Over the years, the nearly $15.3 billion asset bank has also performed well, regularly generating returns on average tangible common equity in excess of 17% and often in excess of 20%.
The bank will also benefit from rising interest rates. At the end of March, Butterfield said that a 1% increase in short- and long-term interest rates would increase net interest income, the money banks make on loans, securities, and cash after covering the cost of funding those assets, by roughly 6% over the next year.
The bank pays out a massive annual dividend yield of almost 6%. Butterfield targets a 50% dividend payout ratio, which it already looks to be at, so the dividend might not grow as aggressively as it has in the past, but it's still an very rich yield that few companies can beat.
