Dividend stocks can be magnificent investments. They provide investors with a nice base return from their dividends. On top of that, the top dividend stocks can steadily grow their earnings and increase their dividends, enabling them to produce attractive total returns.
Federal Realty Investment Trust (FRT -0.37%), EastGroup Properties (EGP 0.12%), and Weyerhaeuser (WY -1.30%) have magnificent track records of paying dividends. Because of that, they stand out to a few Fool.com contributors as great dividend stocks to buy this July.
This REIT is royalty among dividend producers
Marc Rapport (Federal Realty Investment Trust): It's good to be king -- and to invest in them. Take Federal Realty. This real estate investment trust (REIT) has raised its dividend for 55 straight years, making it the only REIT on the exclusive list of Dividend Kings, those stocks that have seen payout boosts for at least 50 consecutive years.
Federal Realty makes its money and pays investors theirs from a portfolio of some 100 mixed-use centers in affluent suburban locations in just nine markets: Southern California, Silicon Valley, Phoenix, Chicago, Boston, New York, Philadelphia, Miami, and Washington, D.C.
A good example of Federal Realty's partnerships in upscale settings is with Cava Group, the Mediterranean-style restaurant chain that went public in June. Cava chose the REIT's Pike & Rose center in North Bethesda, Maryland, for the first location of its new Julii cafes in 2018.
Federal Realty's stock is yielding about 4.4% at a share price of about $98. Like some other dividend royalty, its total return can lag the greater market, but the yield beats savings and bonds, and the share growth potential adds to the appeal.
Indeed, analysts currently give it a target price of $112.33, an upside of about 16%. With a payout ratio of only about 50% based on cash flow, an investment-grade balance sheet, and a recession-resistant focus on affluent areas, Federal Realty continues to be a reliable option for dividend investing.
An outstanding track record
Matt DiLallo (EastGroup Properties): EastGroup Properties has been an exceptional dividend stock. The industrial REIT has delivered a dependable dividend to shareholders over the last 30 years. It has increased its payout in 27 of those years (including for the last 11 straight) while maintaining it in the other three. That's a strong track record, considering many REITs have cut their dividends.
The secret to EastGroup Properties' success is its well-defined investment strategy. The REIT focuses on owning distribution facilities clustered together near major transportation infrastructure in supply-constrained markets across the fast-growing Sun Belt region. EastGroup has built a significant percentage of its portfolio (49% of its current asset base) from the ground up. It purpose-builds facilities in business parks for clients based on their location needs.
The REIT will also acquire properties to add value through expansion, redevelopment, or leasing. It's currently investing $553 million in 21 development and value-add projects that will grow its cash flow in the future.
EastGroup also benefits from rent growth. Its focus on strong locations enables it to capture higher market rents as legacy leases expire and reprice to market rates. Rental rates on new and renewal leases surged 48.5% during the first quarter, compared to the rates on expiring leases, driven by robust demand for warehouse space amid limited available supply. Given the long-term nature of its leases, it should continue to benefit from outsize rent growth as legacy leases reprice to market rates.
EastGroup Properties has a magnificent track record of paying dividends. With more growth ahead, the REIT is a great buy for passive income seekers this July.
Homebuilding appears to be rebounding
Brent Nyitray (Weyerhaeuser): Weyerhaeuser is a timber real estate investment trust (REIT) that owns, operates, or controls 24.7 million acres of timberland in North America. Weyerhaeuser is also one of the biggest manufacturers of wood products in the U.S., with 35 manufacturing facilities that make structural lumber, oriented strand board, engineered wood products, and other specialty products.
Weyerhaeuser is highly levered to homebuilding, which has been in the doldrums ever since the real estate bubble burst in 2006. Since then, a glut of homes has turned into an abject shortage, with the National Association of Realtors seeing an underbuilding gap of 5.5 to 6.8 million units.
Housing starts have begun to perk up, and homebuilder stocks have been outperforming the overall market. Homebuilding is an early-stage cyclical, which means it generally starts to pick up in a recession. While the U.S. is not in a recession at the moment, investors are starting to think about a potential rebound in homebuilding.
Weyerhaeuser is a way for investors to bet on a recovery in homebuilding without having to forecast which homebuilder will do the best. Most homebuilders have different geographic footprints and price points. Weyerhaeuser also has an interesting dividend structure. It pays a quarterly dividend meant to be sustainable over the entire cycle and then pays a special dividend at the beginning of every year to reflect the earnings of the previous year.
The current quarterly dividend of $0.19 gives the stock a yield of 2.3%; however, it also paid a $0.90 special dividend in February of this year. Between the special dividend and the quarterly dividend, Weyerhaeuser yields 4.9%. Investors betting on a recovery in housing might find Weyerhaeuser attractive.
