As the bear market in stocks grinds on, bargains are starting to emerge. That's especially true among companies that pay dividends because yields move in the opposite direction as stock prices.
Crown Castle (CCI -0.67%), Brookfield Asset Management (BAM 1.87%), and Simon Property (SPG -0.26%) currently stand out to a few Fool.com contributors for their outsize yields. However, their compelling dividends are only part of the draw. Here's why they look like screaming buys right now, especially for those who like to collect dividend income.
This REIT has the real goods for shouting "buy" from rooftops and towers
Marc Rapport (Crown Castle): If someone needs to get in touch with you right now and scream about a great stock buy, there's a decent chance that Crown Castle will be the subject of that message.
That's because this Houston-based real estate investment trust (REIT) claims ownership of perhaps the largest telecommunications infrastructure network in America, currently comprising more than 40,000 cell towers, 85,000 miles of fiber-optic cable, and 120,000 small cell nodes.
This trust's list of tenants is dominated by the major mobile carriers, but thousands of other customers also use its equipment, and the fast-growing expansion of 5G networks through small antenna arrays on rooftops and inside buildings should just make the coffers fill even fuller.
In recent weeks, in fact, Chief Executive Officer Jay Brown said Crown Castle expects 5% organic revenue growth in its traditional towers business while doubling the number of small cells installed from 5,000 last year to 10,000 this year.
In recent years, meanwhile, Crown Castle has been an outperformer, as the chart below shows, with growth in share price, dividend, and total return easily outpacing a standard benchmark for this sector, the Vanguard Real Estate ETF.
Meanwhile, the company's stock has taken a beating and is down about 35% in the past year. That's helped drive the yield up to a nice 5.5% of late, and Crown Castle's own habit of raising its dividend for eight straight years, and its pledges to continue doing so, albeit at a slower pace, help make this stock a strong buy-and-hold consideration for passive income and value investors.
The already attractive payout will grow briskly in the coming years
Matt DiLallo (Brookfield Asset Management): Brookfield Corp. didn't believe the market had given it much credit for building a leading alternative asset manager from scratch. That led the company to spin off a portion of that business, Brookfield Asset Management, to shareholders, hoping it would unlock value for investors. That hasn't happened yet. Shares of both entities have fallen since the spin-off.
Brookfield Asset Management recently reported its first quarterly results as a public company. Its distributable earnings rose 11% to $547 million, or $0.34 per share. As is its practice, the company distributed most of those earnings (more than 90%) to investors via its dividend, which it set at $0.32 per share each quarter for this year. That gives it a 4% dividend yield at the recent share price.
Brookfield expects its fee-related earnings to grow at a 15% to 20% annual rate in the coming years. One near-term growth driver is its significant dry powder to make new investments. The company has $37 billion of committed investor capital that's not currently earning fees. That represents $370 million of future fee-earning revenue. The company can earn fees on that capital as it deploys it into new investment opportunities.
Meanwhile, the company continues to raise new funds. It recently launched its fifth flagship real estate fund, an infrastructure income fund, and its second Global Transition Fund. As it raises capital from investors in these and other funds, it'll earn more recurring income from management fees.
Brookfield expects to increase its dividend along with fee-related income. That implies it could increase its payout by more than 15% annually in the coming years. That combination of growth and income at a lower price makes Brookfield Asset Management look like an extremely attractive investment opportunity right now.
The job market remains robust, supporting consumer spending
Brent Nyitray (Simon Property Group): Simon Property Group is one of the premier operators of shopping malls, including Premium outlets and the Mills, in the U.S. As of March 31, the company owned or had an interest in 196 properties and an 80% non-controlling interest in Taubman Centers. It also owns a stake in French retailer Kleppiere.
Retail REITs took a hit from the COVID-19 lockdowns, and many saw some of their tenants fold. This depressed occupancy rates, although they are returning to pre-pandemic levels. In the quarter ended March 31, occupancy was 94.4%. Before the pandemic it was 95.1%. Sales per square foot rose to $759 in the fourth quarter, which was a record.
The current U.S. labor market is quite strong, with the unemployment rate sitting at 3.4%, which is the lowest rate in 50 years.
Data source: YCharts US Unemployment Rate
The Federal Reserve has hiked the federal funds rate by 5 percentage points during the past 14 months, and the unemployment rate is still at close to record lows. It is remarkable how tight the labor market is, and that resiliency will support increased consumer spending.
Simon Property has forecast 2023 funds from operations per share (FFO) to come in between $11.80 to $11.95 per share. REITs generally use FFO instead of net income because FFO doesn't deduct depreciation and amortization, which is a noncash charge. This means that FFO better represents a REIT's cash flows than net income.
Using the midpoint of Simon's forecast, the dividend of $7.40 per year is well covered. Although rising interest rates will be a headwind for all real estate investment trusts, Simon Property should weather them better than most.
