Investors have begun a new year, and during such times, they take an interest in either new investments or adding to positions. This also applies to dividend stocks, especially those that increase their payouts at least once a year.
Due to the bear market, finding stocks trading at a discount has become much easier. Knowing that, it will likely pay off for income-oriented investors to add to names such as Verizon (VZ 0.05%), Innovative Industrial Properties (IIP) (IIPR 1.15%), and Ally Financial (ALLY 1.06%).
Verizon
Verizon has paid dividends since its predecessor, Bell Atlantic, split from the original AT&T in 1984. Today's $2.61 per share annual payout amounts to a 6.3% cash return for investors buying today.
Since 2007, it has hiked this dividend annually. With a streak of 16 years, increases tend to get baked into expectations, and given the recent stock performance, Verizon likely does not want to give its investors another reason to sell.
Indeed, Verizon has been difficult to hold for non-dividend investors. The recent drop in the stock price has wiped out all gains over the last 10 years. Investors have sold amid rising debts, high capital costs, and sluggish subscriber growth, factors which likely helped push Verizon stock down to a price-to-earnings (P/E) ratio of 9.
NYSE: VZ
Key Data Points
Admittedly, Verizon may have to cut prices or invest more in the network. Those factors may keep payout hikes to a minimum.
However, Verizon is an oligopoly, with only AT&T and T-Mobile competing in the 5G realm. All have spent heavily to invest in their networks. Additionally, J.D. Power has recognized Verizon as the most awarded telco for network quality for the last 29 years, an attribute that should hold the company in good stead as the transition to 5G continues.
Innovative Industrial Properties
IIP's annual payout stands at $7.20 per share, a return of 6.8%. And since it began payouts in 2017, no more than three quarters have passed without a payout hike. It has accomplished this by being a different kind of real estate investment trust (REIT), specifically, one that invests in facilities for growing medical cannabis.
Grand View Research estimates a compound annual growth rate for the U.S. cannabis industry at 15%. That growth is a tailwind that should foster IIP's expansion. While IIP acquires new properties on its own, it tends to also add to its portfolio through its sale-leaseback program.
Through that program, cannabis companies sell facilities to IIP, and the company leases the properties back to the former owner, making the property a source of cash. These companies tend to sell to IIP, as the U.S. federal prohibition on cannabis makes obtaining bank loans difficult. Thus, IIP may actually benefit from federal marijuana prohibition.
NYSE: IIPR
Key Data Points
It may also be a great time to buy IIP stock, as it has fallen 60% from its 2021 high. A default of one of its largest tenants spooked investors in 2022. Nonetheless, in the third quarter, revenue grew 32% year over year, and the company's board passed a modest payout hike, implying IIP can maintain growth amid challenges.
Ally Financial
Ally currently pays shareholders $1.20 per share in annual dividends. This amounts to a cash return of 4.4%. And despite this high dividend, the company has hiked the payout every year since beginning dividend payments in 2016.
Ally has stood out as a wholly online bank, one of the few companies offering both traditional banking and fintech services to consumers. Moreover, since it was formerly GMAC, the auto lending arm of General Motors, its lending portfolio leans heavily toward that industry. But thanks to its bank charter, it can make loans without involving third parties, an advantage few fintech companies have in today's environment.
NYSE: ALLY
Key Data Points
However, amid the bear market, it has fallen by around 50% from its high as earnings declined in each of the last three quarters compared to the previous year. Rising rates have also spooked investors and prompted the company to increase provisions for credit losses.
Still, the falling stock price has taken its P/E ratio down to 4.5, an unusually low level even for a bank. During that drop, Warren Buffett's company, Berkshire Hathaway, has steadily added shares of Ally. Such an endorsement may serve as yet another reason to buy Ally before it starts soaring.
