Dividend stocks aren't just for retirees. They provide passive income streams that can be valuable for people at any stage of life, and they're typically well-established anchor stocks that can provide security and ballast to a diversified and healthy portfolio.
If you have $400 available to invest after paying down debt and building a robust emergency fund, Realty Income (O +1.10%), Starbucks (SBUX +0.80%), and Ally Financial (ALLY +0.18%) are three great candidates to add to your portfolio.
This could be the ideal REIT
REITs, or real estate investment trusts, are a popular category of dividend stocks. By law, REITs must distribute 90% of their income as dividends, and because of this, they often feature high yields. Realty Income is considered a safe and secure investment, and it has paid a dividend for more than 50 years. It has also raised its dividend for 106 quarters consecutively, and it's one of few dividend stocks that pays monthly.
Realty Income is a retail REIT, leasing the properties it owns to tenants in predominantly retail industries. It owns more than 15,000 properties after its recent acquisition of Spirit Realty, and its 1,300 tenants span 86 different industries. However, they're concentrated in "essential" categories like grocery stores, convenience stores, and home improvement. Its top tenants include names like Walmart, FedEx, and CVS. Portfolio occupancy stands at 98.6% today, around its usual rate, and went down to 97.9% during the worst low of the pandemic.
NYSE: O
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Despite the difficult conditions in the real estate market, management has assured shareholders that the company remains adequately funded to identify and purchase new properties and keep up its growth. The REIT grows through acquisitions as well as by buying new properties, often through sale-leaseback agreements. Its recent deal with Wynn Resorts, for example, was its first in the gaming sector, and featured a sale-leaseback agreement with a 30-year lease.
Realty Income stock remains down due to negative investor sentiment surrounding the overall real estate market, and its dividend yield has soared to 6%. It's an excellent REIT to add to any portfolio, especially at the current price.
This coffee mega-chain is still expanding
Starbucks stock has been an incredible wealth-builder over the long haul, but it's down over the past year and trailing the broader market. The company is feeling the impact of inflation as well as several other issues that affect its organization.
For example, workers in various locations have been attempting to unionize, and geopolitical events are taking a toll on its sales in some regions. As a global operator, it's susceptible to influences near and far. In general, the totality of its parts means that it has ample growth opportunities. Even if there are some impediments in specific areas, the big picture shows a company with the type of momentum that comes from having a dominant, global brand. But when there are too many little things, they build to an uncertainty that scares investors.
Despite that gloomy intro, and given its problems, Starbucks has been performing fairly well. Sales increased 8% year over year in its fiscal 2024 first quarter (which ended Dec. 31, 2023), driven by a 5% increase in comparable sales. It opened 549 net new stores in the quarter, bringing its total to 38,587, and it's on its way toward 55,000. Its operating margin expanded by 1.4 percentage points to 15.8%, and earnings per share increased 22% to $0.90.
NASDAQ: SBUX
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Starbucks has been experiencing growing pains -- or more accurately, changing pains -- since shifting consumer trends accelerated when the pandemic started. New CEO Laxman Narasimhan recently unveiled the "Triple Shot with Two Pumps Reinvention plan," which focuses on building and renovating stores to enhance speed and digital ordering, a major store count expansion, and the company's rewards program. It's also experimenting with new menu plans and product innovation.
Investors are waiting to see how these plans turn out. In the meantime, at the current share price, Starbucks' dividend yields 2.6%, and management has raised it by more than 300% over the past 10 years.
This fast-growing bank pays a great dividend
Ally Financial is the largest all-digital bank in the U.S., and while you may have heard of it in relation to its popular financial services, you might also know it as a recent Warren Buffett stock. Ally fits his model well: It offers consumer-centric products, it's well-managed, and it has looked severely undervalued. That last point changed somewhat since Buffett added it to the Berkshire Hathaway portfolio; Ally stock has gained 34% over the past year and now trades at a price-to-earnings ratio of 12, up from around 4 at its lowest point in 2022. But Ally still looks like a great stock to buy, and it pays a dividend that yields 3.3% at the current share price.
NYSE: ALLY
Key Data Points
Why is Ally, among many banks, a top pick? Its dividend yield is one point; Ally's stands out among other high-performing banks. As for its valuation, even though its price-to-earnings ratio is middle-of-the-road for banks, it recently traded at a price-to-book ratio of less than 1, which is lower than most of its peers.
As an all-digital bank, Ally is resonating with younger customers. It also has a high customer retention rate, which suggests that this cohort will stay with Ally and drive future growth. It has a strong personal banking segment, and in the auto loan niche -- which was its original core business -- it's the top U.S. prime auto lender.
Ally has emerged as a real player in banking, competing with the top names. Investors who buy its shares now can benefit from its high dividend yield and growth opportunities.
