While stock prices have generally improved this year, they're still down sharply from their bull market highs. Because of that, the yields on stocks that pay dividends are relatively higher than they were a couple of years ago. That makes this a good time for investors to go bargain-hunting for attractive dividend stocks.
Prologis (PLD 0.17%), Crown Castle (CCI -1.29%), and Western Alliance Bancorp (WAL -1.25%) stand out to a few Fool.com contributors as compelling income investments this month. Here's why they think this trio of dividend stocks would be smart buys this May for those who have around $1,000 available to invest.
Down despite its resilient growth
Matt DiLallo (Prologis): Shares of real estate investment trust (REIT) Prologis have fallen by about 25% over the past year. The key factor behind that decline is the concern that the U.S. economy will slow, which would typically affect demand for warehouse space, impacting rental rates and occupancy.
However, while the economy might slow, that likely wouldn't have much impact on Prologis. That's because the industrial REIT has yet to capture the full effect of surging rental rates over the past few years due to the long-term nature of the leases it signs with tenants. There's a 68% gap between current market lease rates and rents on its legacy rental contracts.
This represents $2.85 per share of incremental funds from operations (FFO) that the company should accrue as its existing leases expire and roll over to higher market rents. That would boost its FFO by 56% from the midpoint of its 2023 FFO per share projection. Given that its leases have an average remaining term of four years, Prologis should capture this embedded rent growth over the next few years. The company forecasts that its same-store net operating income will grow at an 8% to 10% rate annually over the next several years.
In addition to rent growth, Prologis can boost its FFO per share by investing in value-creating development projects and accretive acquisitions. These drivers should enable the REIT to continue growing its dividend at a healthy rate. The company has increased its payout at a 12% compound annual rate over the last five years, including a 10% bump earlier this year. That's twice as fast as the S&P 500's dividend growth rate.
With its share price down and its dividend up, Prologis currently offers a yield of 2.8%. Overall, it looks like a solid source of passive income, and its payouts should grow at an above-average rate for years to come.
A grand in this infrastructure REIT could provide towering returns
Marc Rapport (Crown Castle): Crown Castle provides critical, highly specialized infrastructure to the digital world -- a collection of more than 40,000 cell towers, 85,000 miles of fiber-optic cable, and 120,000 small cell nodes.
Since this infrastructure real estate investment trust (REIT) went public in 1998 with just 1,400 towers, its stock has thoroughly towered over the broader market as represented by the S&P 500. A $1,000 investment made at its IPO would have grown into a cool $13,290 position as of this writing, more than doubling the growth of the index.
CCI Total Return Level data by YCharts.
Will that kind of outperformance continue? Well, at the moment, Crown Castle stock is down by about 28% year over year, compared with a decline of about 5.2% for the S&P 500. But much of that tumble may have been a matter of guilt by association, as REITs overall are being sold off due to rising interest rates and concerns about declining property values in the commercial real estate sector.
Crown Castle, however, provides space on towers and transmitters of all sizes that mobile services providers and thousands of other private and public organizations simply must have to accommodate the digital needs of an increasingly connected world.
This "castle" also has an unusually deep economic moat around it, given how costly it would be for a challenger to replicate its established infrastructure. This keeps competition at a minimum, limited to American Tower and a handful of similar providers.
The falling share price has also pushed Crown Castle's yield up to about 5%, compared to about 1.6% for the S&P 500. And the company plans to continue building on its record of eight straight years of dividend increases.
Altogether, Crown Castle looks like a solid choice for plunking down a grand and watching it grow, come what may.
Western Alliance is not Silicon Valley Bank
Brent Nyitray (Western Alliance Bancorp): Western Alliance was one of the regional banks that saw its shares sell off hard as Silicon Valley Bank and a few others imploded, and deposits fled regional banks. Western Alliance did have some tech sector exposure, primarily through its subsidiary Bridge Bank, which competed with Silicon Valley Bank for tech and life sciences company banking. Bridge and Silicon Valley catered to venture capital and private equity investors.
However, on the first-quarter earnings conference call, Western Alliance put its tech banking exposure into perspective. Tech company banking only comprises 16% of Western Alliance's business while it was 100% of Silicon Valley Bank's business. The company did report a reduction in deposits in the immediate aftermath of the Silicon Valley bank run, but then, deposits stabilized. In fact, prior to that April 19 earnings call, Western Alliance had seen $2.9 billion in deposits return during the month. That didn't entirely make up for its previous outflows, but the trends are in the right direction.
Western Alliance has taken steps to increase its insured deposit percentage from 45% to 73%. In addition, its available liquidity covers its uninsured deposits by 158%. Most notably, Western Alliance reported a 3.3% increase in book value per share, which is not typical for troubled banks. Western Alliance did make some moves to sell some assets and took a charge for them.
Western Alliance is expected to earn $8.23 per share in 2023. This means the stock is trading at a forward price-to-earnings ratio of 4.6, which is exceptionally low for a bank. It's also trading at a 9% discount to tangible book value and has a dividend yield of 3.6%.
