If you like high-yielding dividends, you're in luck this year. With stock prices tumbling, dividend yields are on the rise. That's enabling income-focused investors to lock in even more attractive income streams.
Two high-quality dividend stocks that have endured a beating this year are AvalonBay Communities (AVB -2.53%) and Brookfield Infrastructure (BIPC -5.29%) (BIP -4.46%). Shares of both companies are down more than 20%. That has pushed their dividend yields over 3%, double the dividend yield on an S&P 500 index fund. That makes them even more attractive buys for yield-focused investors.
1. AvalonBay: A real estate-backed income stream
AvalonBay Communities' stock price has tumbled 20% this year. This means the apartment-focused real estate investment trust's (REIT) dividend yield has risen from 2.5% to 3.3%. This higher yield implies that every $1,000 invested in the stock will generate $33 in dividend income over the next year. That's up from $25 for an investment made at the beginning of the year.
The residential REIT's dividend is on rock-solid ground. AvalonBay generates very stable rental income backed by a diversified portfolio of apartment buildings around the country. Demand for apartments tends to be highly resilient, enabling the REIT to generate steady rental income.
Meanwhile, the REIT has paid out a conservative 68% of its cash flow to shareholders via dividends over the past year, enabling it to retain some money to fund its continued expansion. AvalonBay also has a top-notch financial profile, giving it additional flexibility for funding growth and dividends.
While AvalonBay hasn't increased its dividend every year -- it last gave investors a raise in early 2020 -- it has grown its payout at a 5% compound annual rate since its initial public offering. The REIT should be able to expand its payment in the future, driven by rising rental rates, acquisitions, and development projects. All three growth drivers were apparent in the first quarter: Rental revenue increased 8.5%, while AvalonBay has 16 new communities under construction and acquired an apartment community in Colorado.
2. Brookfield Infrastructure: Visible growth ahead
Brookfield Infrastructure has fallen more than 25% this year. That decline, along with a 6% increase in the dividend payment, has pushed the yield up to 3.4%.
That lucrative income stream is also on a solid foundation. Brookfield Infrastructure generates very stable cash flow backed by long-term contracts and government-regulated rates. Meanwhile, the company has a strong investment-grade balance sheet and retains 30% to 40% of its cash flow to support its expansion.
Brookfield Infrastructure has four growth drivers: inflation-related rate increases, growing volumes, expansion projects, and acquisitions. It's benefiting from all four this year. Surging inflation enables Brookfield to increase its rates, while a strong global economy drives higher volumes across its infrastructure assets. Meanwhile, it has several expansion projects underway to capture the growing global demand for infrastructure.
Finally, the company has made several more acquisitions, including buying a regulated utility business, a smart metering business, and a telecommunications service provider, all located in Australia.
Brookfield believes its growth drivers will give it the fuel to expand its dividend at a 5% to 9% annual rate. That should continue the company's streak of increasing the dividend, which hit 13 straight years in 2022.
Sinking share prices are driving dividend yields higher
While this year's sell-off in the stock market has been challenging, it has also presented income-focused investors with the opportunity to lock in higher dividend yields. AvalonBay and Brookfield Infrastructure are two great opportunities now that their yields are over 3% following their steep slides this year. Both payouts are on rock-solid ground and likely to continue heading higher in the future.