2022 has been a challenging year for investors. Market fluctuations, economic uncertainty, and high inflation have made it increasingly challenging to earn returns. But the year isn't over yet.
With fall quickly approaching, September is an ideal time to invest in dividend stocks that can provide some stability and offset some losses before year's end. Three stocks that can do just that are Realty Income (O 0.24%), Iron Mountain (IRM -1.19%), and AFC Gamma (AFCG -0.68%). Let's find out a bit more about these three top dividend stocks.
| Stock | Market Cap | Dividend Yield | 1-Year Return (Loss) |
|---|---|---|---|
| Realty Income | $42 billion | 4.3% | 1.9% |
| Iron Mountain | $15 billion | 4.6% | 16.1% |
| AFC Gamma | $330 million | 12.2% | (9.3%) |
Data source: Ycharts.
1. Realty Income: A Dividend Aristocrat with a monthly payout
When it comes to reliability, few real estate investment trusts (REITs) can compete with Dividend Aristocrat Realty Income. Not only has the REIT maintained annual dividend increases for 27 consecutive years, but it's also one of the few REITs to pay dividends monthly. And it has outperformed the S&P 500 during the past 25 years with an annualized return of over 13%.
Realty Income, which owns a diverse portfolio of over 11,400 properties across the United States and Europe, is one of the largest global REITs that primarily specialize in retail properties. Its tenants include very stable and growing businesses like FedEx, Walmart, Walgreens, Dollar General, and 7-Eleven.
Its size, experience, and fantastic balance sheet have helped the company gain an "A" credit rating, which gives it more-favorable borrowing terms, increasingly important amid rising interest rates. The stock was hard hit at the start of the pandemic in 2020. While it's rebounded, it's still around 4% lower than pre-pandemic highs, making it an opportune time to load up on this top dividend payer.
2. Iron Mountain: One of the top performing REITs of 2022
Iron Mountain is one of the few REITs to show positive returns this year. It specializes in storage for physical assets like art, collectibles, and documents for large companies, and it owns 14 data centers. While other industries are feeling today's economic pressures, business in data storage is booming.
Revenue grew 15% since last year. Its adjusted funds from operations (AFFO), a key metric for a REIT's profitability, rose by 10%, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were up 12%. Long-term demand for data storage in the physical and digital sense should be sustained well into the future, making it a reliable dividend stock with a fantastic track record.
Over the last three years, the stock's total annualized return was more than double the S&P 500 with its share price growing by 67%. Today, the REIT pays a 4.6% yield, and its 66% payout ratio means it has the necessary free cash flow to sustain and continue growing its dividend going forward.
3. AFC Gamma: A newcomer with ultra-high dividend yields
AFC Gamma is one of the newest publicly traded REITs. The mortgage REIT (mREIT), which makes loans to licensed operators in the cannabis industry, went public in early 2021. Since then, it has grown earnings per share (EPS) by 39% and increased its dividend payouts by 55%. This newcomer hasn't been able to outperform the S&P 500 since its initial public offering, but its dividend yield more than makes up for it.
Stocks with ultra-high dividend yields like AFC Gamma often carry much higher risk. Things like overleveraged payout ratios make dividend cuts likely. But AFC Gamma's payout ratio is a manageable 71% of EPS, and the company's debt-to-equity ratio is a low 0.29 while its average yield to maturity is 18% for the $438 million it has in loan commitments.
High demand for its loans and the huge spread between its cost for borrowing (low single digits) and return (the aforementioned 18%) on its loans has helped the company create a super-safe dividend return -- at least for the time being. Long-term risks include the federal legalization of marijuana or new legislation like the SAFE Banking Act being passed, either of which would make access to capital for cannabis operators much easier. And that would ultimately hurt the REIT's business. Many cannabis operators currently rely on the cash they get from loans issued by AFC Gamma (using their property as collateral) to help fund their operations.
However, AFC Gamma believes its loan business will continue to appeal to a wide market and to those who won't get approved for traditional financing if and when it becomes available, leaving a lot of room for growth.
