There's a lot of uncertainty in the market these days. The Federal Reserve is pushing rates higher in hopes of cooling off inflation. It also risks cooling off the economy. That could impact some companies' ability to maintain and grow their dividends.
However, some dividend stocks stand out for their elite track records. They've proven their ability to maintain and grow their payouts no matter what's going on in the economy. Three of these top-tier dividend stocks are Mid-America Apartment Communities (MAA 0.71%), Realty Income (O 0.52%), and W. P. Carey (WPC 0.27%). Here's why three Fool.com contributors think they stand out as excellent buys this September.
Mid-America Apartment Communities is a proven performer in a booming business
Marc Rapport (Mid-America Apartment Communities): Driven by such factors as housing affordability and the allure of job-rich markets, particularly in the Sun Belt, the nation is seeing a huge surge in apartment construction.
RentCafe reports that 420,000 new units are expected to be completed this year, the most since 1972. Much of that is in the very markets where Mid-America Apartment Communities operates, such as Atlanta, Dallas, Tampa, and Austin.
MAA already is one of the nation's largest residential landlords, with an ownership interest in 101,299 apartment homes in 16 states and the District of Columbia as of June 30. This residential real estate investment trust (REIT) is actively growing its portfolio through development and acquisition and has been raising its short-term rental rates at an inflation-beating pace in a particularly recession-proof industry.
So what, besides being in a hot market at the right time, makes an elite dividend stock? Well, the company just paid its 114th consecutive quarterly dividend since going public in 1994. And that dividend was a 15% increase to $5 per share, building on an impressive record of 15.5% annual compounded total return.
MAA stock is currently yielding about 2.9% and analysts give it a consensus price target of $207.64, which would be a nice gain from the $170 or so it's been trading at lately. They also deem it a "moderate buy" and I agree. I intend to moderately add to my stake in this dividend machine.
Jerome Powell's words should make investors think about defensive income
Brent Nyitray (Realty Income): At Jackson Hole, Federal Reserve Chairman Jerome Powell spooked the markets by reemphasizing the Fed's commitment to higher interest rates. The stock market had a brutal sell-off, bond yields rose, and the Fed Funds futures became more hawkish, handicapping another 150 basis points of rate hikes this year. Given that gross domestic product growth fell in the first and second quarters, the economy is either in or close to a technical recession. With the economic impact of the past few rate hikes yet to be felt, and an already weak economy, investors should take a long look at defensive stocks. Realty Income is probably the most defensive stock in the real estate investment trust (REIT) sector.
Realty Income focuses on single-tenant properties leased out to tenants in highly defensive industries under long-term leases. The typical tenant for Realty Income would be a dollar store, convenience store, or drugstore. If the economy goes south, these businesses will still maintain sales as people still buy over-the-counter medications, paper plates, and candy. Even during the height of the pandemic in 2020, when most REITs were forced to cut their dividends, Realty Income actually increased its dividend three times. It has a long history of dividend increases, which makes it part of an elite group of companies called Dividend Aristocrats.
Realty Income currently pays a monthly dividend of $0.248 per share, which works out to be a dividend yield of 4.2%. The company is guiding for full-year 2022 normalized funds from operations (FFO) to come in between $3.92 and $4.05 per share. This gives the company a multiple of 17 times expected 2022 FFO per share, which is a reasonable multiple for a high-quality, defensive REIT.
A steady income producer
Matt DiLallo (W. P. Carey): W. P. Carey has an outstanding dividend track record. The diversified REIT has increased its dividend every year since its initial public offering in 1998. It also offers an attractive dividend yield of 5%, which is above the REIT sector's roughly 3.5% average and the 1.5% payout of an S&P 500 index fund.
W. P. Carey's dividend is on an excellent foundation. It all starts with the company's diversified portfolio focused on operationally critical real estate across the industrial, warehouse, office, retail, and self-storage property sectors. It leases these properties to high-quality tenants under long-term net leases, making them responsible for real estate taxes, maintenance, and building insurance. Those leases also feature annual escalation clauses -- most tied to the inflation rate -- enabling W. P. Carey to generate steadily rising lease income.
The REIT's other growth driver is acquisitions. It will steadily acquire additional income-producing properties directly from the operator under sale-leaseback transactions. W. P. Carey has a solid financial profile to support its growth, including a reasonable dividend payout ratio (enabling it to retain cash to fund new investments) and an investment-grade balance sheet. Combined with rising rental rates, new property additions will help grow the company's cash flow to support continued dividend increases.
W. P. Carey offers dividend investors an above-average yield with an elite track record of steadily growing its dividend. That makes it a great stock for those looking for a high-quality passive income producer this month.
