If you're just getting started with dividend investing, congratulations: You could hardly have picked a better time. Dividend stocks have been getting beaten down this year through no fault of their own.
Now that interest rates have risen sharply to combat inflation, institutional investors can receive risk-free returns from Treasuries that are hard to pass up. With less demand from big buyers, many dividend-paying stocks with long track records of annual payout raises have been in free fall.
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These two dividend-paying stocks are trading near 52-week lows. Here's why picking them up now and holding them through never-ending interest rate cycles gives you a great chance to outperform.
1. Realty Income
Realty Income (O +0.49%) is a real estate investment trust (REIT) that owns over 13,000 commercial properties. It has raised its monthly dividend payout for 29 consecutive years, but that hasn't stopped its stock price from sliding about 27% in 2023.
NYSE: O
Key Data Points
At its recently depressed price, the stock offers a 6.2% dividend yield. The last time a plummeting stock price caused its yield to rise this high was early 2020.
Realty Income uses net leases that transfer all the variable costs of owning its buildings, such as maintenance and taxes, to the tenants that lease them. With an average remaining lease term of roughly nine years, the REIT's cash flows are generally predictable.
Increased interest expenses are limiting growth, but it's hardly the catastrophe you'd expect from looking at Realty Income's stock price chart. Management expects adjusted funds from operations (FFO) to rise from $3.92 per share in 2022 to a range between $3.94 and $4.03 this year.
Interest expenses have risen for Realty Income's tenants, but they aren't buckling under the pressure. The REIT had about a 99% occupancy rate at the end of June, and management expects to finish 2023 above 98%. Taking advantage of the unusually high yield this dividend payer offers right now and holding for the long run looks like a smart move.
2. American Tower
American Tower (AMT 1.64%) is another beaten-down REIT with a strong track record of dividend raises over time. The company increased its payout by about 459% over the past decade, and it's unusual to see it offer a yield above 2%.
NYSE: AMT
Key Data Points
But shares of American Tower have fallen by about 49% from their peak in 2021, and at recent prices, the stock offers a previously unimaginable 4.1% dividend yield.
American Tower finished June with $38.8 billion in debt, and servicing that debt got a lot more expensive over the past year. Second-quarter interest expenses rose 26% year over year to $348 million, and net income plummeted.
Luckily for long-term shareholders, signs of inflation have subsided and the Federal Reserve isn't forecasting rapid interest-rate raises in the foreseeable future. In other words, there's a good chance earnings can return to growth in the quarters ahead.
American Tower owns heaps of data transmission towers, but don't be fooled by its outdated name: The company owns about 226,000 communications sites, and four out of five are outside of the U.S. market.
The REIT is also getting attacked on the top line by a dollar that's risen against foreign currencies. This year, the company expects total property revenue to grow just 3.9%, but it also thinks the effects of currency exchange will reduce its international growth rate by 3% this year.
Currency exchange rates might work against American Tower's top line this year, but it's always just a matter of time before foreign currencies gain ground on the dollar again. With an expanding presence on multiple continents, and towers that can host multiple tenants, there are still plenty of opportunities for growth. Over the long run, you could regret not taking advantage of this REIT's historically low valuation.
