Are stock market fluctuations giving you a headache? If you're tired of wondering if you're up or down, it could be time to fill your portfolio with dividend-paying stocks.
Share prices of companies committed to distributing profits are generally more stable than growth stocks. Plus, all the dividend payments they send to your brokerage account are yours to keep no matter what happens to the stock.
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According to Fidelity, dividend payments have contributed roughly 40% of the S&P 500's total return since 1930. If you look at decades where inflation averaged 5% or higher, as it is doing now, dividends are responsible for 54% of the benchmark index's total return.
Billionaire money managers keenly aware of how well dividend stocks perform during periods of high inflation have been buying shares of these two real estate investment trusts (REITs) this year. Here's why they find them so attractive.
1. Sabra Health Care REIT: 8.73% yield
As a real estate investment trust, Sabra Health Care REIT (SBRA 0.07%) must distribute at least 90% of its earnings to shareholders as a dividend.
At the moment, Sabra shares offer an 8.73% yield that Israel Englander and the firm he manages, Millennium Management, must feel is pretty stable. The firm acquired nearly 2 million shares of the stock in the second quarter of 2022. Ken Griffin and the hedge fund he runs, Citadel Advisors, is also bullish on Sabra. Griffin's fund bought 1.5 million shares.
Sabra owns 406 properties, the vast majority of which are senior housing and skilled nursing facilities. The REIT also owns a handful of behavioral-health and specialty hospitals. The pandemic was especially hard on nursing homes, but the company only had to cut its dividend payout once, by one-third in early 2020.
A diverse collection of assets allowed Sabra to navigate the pandemic better than you'd expect considering that the businesses that operate its properties rely heavily on older adults who are extra vulnerable to infectious diseases. Looking ahead, North America's aging demographic will give Sabra and its dividend payout plenty of chances to grow.
2. Medical Properties Trust: 10.01% yield
An aging demographic also bodes well for Medical Properties Trust (MPW -0.77%). This is a REIT that specializes in hospitals and smaller acute-care facilities. Englander's Millennium Management was one of several firms that bought over 1 million shares of this REIT in the second quarter.
Unlike Sabra, Medical Properties Trust has raised its dividend every year since 2018. Even a rising payout couldn't help this REIT overcome the fear of a potential recession that is hammering stocks across the board. This year, its shares have lost more than half their value.
At its new heavily discounted price, this REIT offers a juicy 10.01% yield. There are no guarantees that it will continue making steady payout hikes in the years to come, but it has a pretty good chance.
Funds from operations (or FFO) are a proxy for earnings that analysts use to evaluate REITs. Over the past 12 months, Medical Properties Trust has delivered $1.80 per share in FFO. That's more than enough to cover a dividend that currently works out to $1.16 per share annually.
Medical Properties Trust gets its operators to sign net leases that transfer all the variable costs of building ownership onto the operator. This makes the company's cash flows highly predictable. With a dividend payment that investors can reasonably expect to continue growing in the years ahead, following Englander's lead and adding this stock to a well-diversified portfolio looks like a great idea right now.
