One difficult part of long-term investing is simply waiting. Investors may buy inexpensive stocks in hopes of seeing outsize long-term gains. That can often involve dealing with periods of stagnation or even decline, and sometimes, that payoff can take years.
In other cases, the payoff could occur more quickly, as investors saw with stocks like Nvidia and Super Micro, which have skyrocketed since the beginning of 2024. They may or may not have run their courses in the near term, but three other stocks have a high likelihood of ending the year higher.
Realty Income
Realty Income (O 1.12%) is a real estate investment trust (REIT) that owns approximately 15,500 single-tenant commercial properties. It leases space to many of the nation's most prominent retail businesses, often buying their property and leasing it back to the former owner.
Moreover, the agreements are net leases. That means the tenant covers maintenance, taxes, and insurance costs.
Despite that benefit, the stock seems to have suffered because higher interest rates increase borrowing costs and, by extension, the cost of new deals.
Nonetheless, its monthly payout, which pays investors almost $3.08 per share annually, offers a dividend yield of 5.7%. Since the payout has risen at least once a year since 1994, the dividend increases will likely continue.
Additionally, Realty Income could see some relief on the interest rate front. After massive increases in past years, the Fed believes it will pass three interest rate cuts this year. This should lower Realty Income's borrowing costs, which could draw more investors into the stock.
Finally, its price-to-earnings (P/E) ratio of 43 is on the lower end of its historical range, considering that the earnings multiple has exceeded 50 over most of the last five years. With that attractive entry point, investors should view Realty Income as a growth and income stock that should bring higher returns in 2024 and in the years to come.
Innovative Industrial Properties
Another REIT on the rebound is Innovative Industrial Properties (IIPR 1.02%) (IIP). IIP leases land and facilities to cannabis growers. As of the end of 2023, it owned 108 properties, or 8.9 million leasable square feet, in 19 U.S. states.
Like Realty Income, it buys a property and leases it back to the former owner. Since marijuana companies are barred from using the banking system, this gives them a ready source of cash while giving IIP a revenue stream.
IIP has also shown it can deal with adversity. The last downturn in the cannabis industry led to a rise in non-paying tenants. However, it was able to pivot, renegotiating terms on some leases, finding new tenants, or selling properties when it could not find an alternate solution.
It confirmed this strength late last year when it announced its first payout hike in five quarters. At $7.28 per share annually, its dividend yields 7%.
Also, IIP's stock has steadily marched higher since reaching a low last April, and its P/E ratio of 18 is near record lows. As cannabis sales improve and interest rates fall, bullish trends appear to be in place to take IIP higher, now and in the future.
IBM
Another strong income stock is IBM (IBM 0.18%). The company and its shares had stagnated for years as its tech businesses struggled to grow amid rising competition.
However, the paradigm changed when IBM bought Red Hat in 2019. The architect of that purchase, Arvind Krishna, became CEO soon after. He went on to acquire dozens of cloud-based businesses and spun off the managed infrastructure segment into Kyndryl.
Now, IBM is the world's sixth-largest cloud infrastructure provider. While not the largest share in the market, the cloud computing industry is expected to grow at a compound annual growth rate of 14% through 2030, according to Grand View Research. Also, its generative AI platform, watsonx, positions the company to support artificial intelligence-driven applications for its customers, making it likely its cloud business will grow.
Additionally, with its $6.64-per-share annual dividend, IBM is one of the highest-yielding cloud stocks, with a dividend yield of 3.5%. If it chooses to hike the payout in April as it has in past years, it would mark the 29th consecutive year it has increased the dividend.
More investors have taken notice of IBM's value proposition. The stock is up nearly 50% over the last 12 months, taking it to near all-time highs. Even though its P/E ratio of 24 is high by IBM's standards, it compares well to other cloud and AI stocks, increasing the odds that the shares will set new record highs in 2024 and beyond.
