2022 was a tough year for the stock market, and that's even true for some of the most rock-solid dividend stocks. Despite excellent profitability and consistent cash flow, some of the best-run dividend stocks are down by 20%, 30%, or more over the past year.
With that in mind, now could be an excellent opportunity to add shares of some excellent dividend stocks while they're on sale. These stocks not only have the ability to produce outstanding total returns over time, but can also give you the peace of mind that comes with investing in excellent businesses with relatively low volatility. Here are three, in particular, that look especially attractive right now.
The long-term trends remain very strong
To put it mildly, the industrial real estate subsector was on fire in 2020 and 2021. As the world was facing COVID-19 disruptions, e-commerce surged and demand for logistics space soared. And rent skyrocketed. Industrial real estate investment trust (REIT) EastGroup Properties (EGP 0.12%) reported rent increases of 39.4% year over year in the most recent quarter on both new and renewal leases.
However, the recent slowdown in consumer spending, combined with fears of a 2023 recession, have caused the sector to cool off a bit. Plus, there are fears that industrial REITs built too many properties during the boom, which could lead to oversupply problems.
These are temporary concerns. EastGroup's portfolio is 99% leased, and even its six just-completed properties were 94% leased upon completion. Plus, the long-term trend for e-commerce is strong, with the percentage of retail sales coming from e-commerce still only about 15%. With EastGroup down by one-third from its 52-week high and offering a 3.3% dividend yield, now could be a great time to take a closer look.
You couldn't ask for a more stable tenant base
Easterly Government Properties (DEA -0.26%) is a unique REIT because it owns a variety of property types, but virtually all of them are leased to a single tenant -- the United States government. The company owns 95 properties leased to various government agencies, which gives it an extremely stable and predictable stream of rental income.
The stock is down by 37% from its highs, despite the stability, and there are a couple of reasons why. First, the cost of capital has increased significantly as interest rates have risen, making near-term growth more challenging. And second, because it's so stable, Easterly trades more like a bond, in the sense that investors buy it for its yield, which moves up and down with prevailing rates.
Since price and yield have an inverse relationship, Easterly's stock price has come under pressure, even though the business continues to deliver steady profitability. Because of its depressed share price, Easterly currently has a 7.2% dividend yield, making it attractive from an income perspective. It also has upside potential in the stock price.
Real estate yields without the individual stock risk
Last but not least, if you're not comfortable taking the risk involved with choosing a specific REIT, why not just buy them all? The Vanguard Real Estate ETF (VNQ 0.05%) is an exchange-traded fund, or ETF, that tracks the real estate sector.
Because of the 2022 declines, the ETF has an excellent yield of about 3.8% and the upside potential that comes with exposure to some of the largest and strongest REITs in the market. Top holdings include companies like American Tower, Prologis, Equinix, and many more.
The bottom line is that yield-oriented investments like REITs generally had a terrible 2022, and now could be a great time to take advantage of a rare opportunity to buy rock-solid dividend stocks (or the ETFs that track them) at a discount.
