Stock prices have fallen this year as investors weigh the impact of rising interest rates on the economy. While no one wants to see the value of their portfolio decline, there is a silver lining to this year's market sell-off. Dividend yields are rising because they move in the opposite direction of stock prices.
Because of that, investors can lock in some enticing dividend yields these days. Three top options that currently stand out are Realty Income (O +0.70%), Crown Castle (CCI +2.12%), and Agree Realty (ADC +0.67%). Here's why three Fool.com contributors think these top-notch dividend stocks are great buys for yield-focused investors this November.
NYSE: O
Key Data Points
If the economy is headed for a recession, it pays to get defensive
Brent Nyitray (Realty Income): Realty Income is a real estate investment trust (REIT) that focuses on single-tenant properties under an unusual lease structure called a triple-net lease. This means that the tenant is responsible for almost all operating costs, including taxes, maintenance, and insurance. The leases generally last more than a decade and contain automatic rent escalators. From the landlord's perspective, triple-net leases require careful vetting of tenants since the lease terms are so long.
Because these leases are long term, the tenants have to be able to make it through thick and thin economically. Realty Income focuses on large, stable tenants with investment-grade credit ratings. The company's typical tenant is something like a drug store, dollar store, or convenience store. This portfolio benefited the company during the height of COVID-19-related store closures, because most of these businesses were considered essential and permitted to remain open.
The COVID-19 pandemic illustrates the resiliency of Realty Income's business model. When most REITs were forced to cut or suspend their dividend, Realty Income raised its monthly dividend three times in 2020. Realty Income's long track record of dividend increases has put the stock in an elite group of dividend payers called Dividend Aristocrats, those S&P 500 companies that have increased their dividends for 25 consecutive years or more.
Realty Income has forecast adjusted funds from operations (AFFO) to come in between $3.84 and $3.95 per share this year. Funds from operations are the way REITs prefer to report earnings because it strips out many non-cash charges like depreciation and amortization. At current levels, Realty Income is trading at 16 times estimated 2022 AFFO per share, which is a reasonable multiple. It also has a 4.8% dividend yield.
NYSE: CCI
Key Data Points
A small speed bump
Matt DiLallo (Crown Castle): Shares of Crown Castle have been under lots of pressure this year. The infrastructure REIT's stock price has tumbled more than 38% amid surging interest rates and the merger of two customers.
Those two headwinds will cause the communications infrastructure company's growth rate to slow next year. It expects its adjusted funds from operations (FFO) to increase by about 4% per share in 2023, down from the 6%-per-share growth it's on track to deliver in 2022.
However, that's a speed bump on the long road of growth it sees ahead. The company expects its growth rate to reaccelerate over the longer term as mobile carriers build out their 5G networks. Crown Castle anticipates demand for small cells will double in 2023 from 5,000 annual new deployments to 10,000. In addition, it continues to see strong demand for larger towers that serve as the backbone infrastructure of 5G networks.
Because of that, Crown Castle believes it could increase its dividend at a 7% to 8% annual rate over the long term. It recently gave its investors another raise, boosting the payout by 6.5%. With the stock price falling and the dividend payment rising, Crown Castle's yield is approaching 5%.
That's an attractive payout for a company with Crown Castle's top-notch dividend growth track record. The company has increased its payout every year since becoming a REIT in 2014, increasing it at a 9% compound annual rate. Given its current high yield and long-term growth forecast, Crown Castle could produce double-digit percentage total returns. That makes it a great passive income stock to buy for the long haul this November.
NYSE: ADC
Key Data Points
Agree Realty continues to grow its dividend and portfolio
Marc Rapport (Agree Realty): Agree Realty is a REIT whose hits just keep coming. The owner-operator of more than 1,700 retail properties just reported another positive quarter that saw both its dividend and funds from operations continue to increase.
There are REITs you can buy that yield more than the 4.2% that Agree shares currently produce, but not many have been as steady or as likely to remain so.
Agree currently has about 35.8 million square feet of space it leases to a who's who of reliable, mostly investment-grade tenants. Grocery stores and home improvement are the largest single sectors, accounting for about 9% each of its annual base rent.
That portfolio is 99.7% leased and it's growing. This retail REIT has acquired 303 net-lease properties for about $1.2 billion so far this year, and it boasts a fortress balance sheet and more than $800 million of available capital.
Meanwhile, the monthly dividend of $0.24 that Agree declared in October was a 5.7% year-over-year increase, close to its average annual boost for the past 10 years, and core FFO was up 5.6% to $0.97 per share. A payout ratio of 73% looks very sustainable while the growing revenue should set the stage for possible dividend increases.
That decent yield level is not the result of a battered share price. Agree stock is down only about 7% so far this year, much less than the rest of the stock market, and it's produced a compound average annual total return of 12.4% since its 1994 initial public offering. That kind of steady performance from this passive-income machine looks poised to continue.
