Dividend stocks are proven wealth creators. Over the last 50 years, they have outperformed non-payers by more than 2 to 1. A big driver is their steady (and often growing) income stream, which provides investors with a solid base return year in and year out.
One Liberty Properties (OLP +0.57%), Truist Financial (TFC +0.12%), and Mid-America Apartment Communities (MAA 0.52%) have magnificent records of paying dividends. That's one of the factors that make them stand out to a few Fool.com contributors. Here's why they believe investors won't regret buying these top-notch dividend stocks right now.
The founding family wants to keep this REIT's dividend going for years
NYSE: OLP
Key Data Points
Tyler Crowe (One Liberty Properties): There are many shorthand ways investors assess the viability of a dividend for years into the future. One of the more underappreciated ones is when founding families have large company ownership. When a family's income comes from a single stock's dividend payments, you can be reasonably sure that the company will be managed to preserve those dividend payouts.
That has been the case with One Liberty Properties for many years. The Gould family founded the real estate investment trust (REIT) and still owns 27.4% of the outstanding shares. Their large stake in the REIT has likely been why the company has paid consecutive dividends for over 30 years.
A long dividend history is a little impressive, but what emphasizes the company's commitment to its dividend is that management has maintained its payout even though it has undergone a complete portfolio transformation. Over the past decade, the company went from a diversified REIT with a smorgasbord of properties (fitness centers, furniture stores, offices, and restaurants) to a mostly industrial warehouses and distribution facilities portfolio. In 2016, industrial made up about 22% of annualized rent. Today, industrial properties make up 67%.
This portfolio transformation was challenging. Funds from operations stagnated, and it had to take on more debt than most investors would be comfortable with. Despite these headwinds, it paid its dividend like clockwork.
With a transformed portfolio and improved financials, it won't be surprising to see One Liberty Properties start increasing its payout. At a current yield of 7.5%, that could be a pretty attractive stock.
Take it to the bank
NYSE: TFC
Key Data Points
Jason Hall (Truist Financial): Admittedly, banks can be both very safe and very risky investments. They're leveraged (they have a lot of cash but lend most of it out) and very tied to the overall economy. Further, sentiment can drive their share prices down painfully when there are worries about the economy. That can also create opportunity for investors, too, particularly if you focus on the strongest, best-capitalized banks that can weather economic storms and keep paying their shareholders.
Truist Financial is on that shortlist for me. It has consistently earned mid- to high-teens returns on common tangible equity, kept its expense ratio (how much of its revenues must cover operations) in the high-50% to low-60% range, and retained more than sufficient liquidity to meet depositor needs and secure its balance sheet.
And while its earnings have faced a bit of a squeeze due to the surge in interest rates that's slowing lending and a very weak supply of homes affecting the mortgage market, it still generates strong earnings well in excess of its dividend. Last quarter, it earned $0.81 per share, putting its payout ratio at 64% for the quarter.
With a yield above 5% and shares trading for just over 9 times earnings, investors willing to buy and hold for many years will not regret investing in Truist Financial right now.
This passive income machine is on sale
NYSE: MAA
Key Data Points
Matt DiLallo (Mid-America Apartment Communities): Apartment REIT Mid-America Apartment Communities, or MAA, has done a magnificent job paying a stable and growing dividend. The company paid its 121st consecutive quarterly dividend last month. It has increased its payout for 14 straight years, including by 5% late last year. The REIT currently yields over 4%, about three times the S&P 500's roughly 1.3% dividend yield.
A big factor causing that high yield is the 40% decline in the REIT's share price from its peak in 2022 due to higher interest rates. They have weighed upon the value of real estate and made it more expensive for the REIT to borrow money to fund new developments and acquisitions. MAA has also faced some near-term rent growth headwinds due to increased new supply in many of its markets.
However, those headwinds should fade over the next few quarters. The Federal Reserve has indicated that it plans to start lowering interest rates as inflation moderates, which many expect will happen later this year. In addition, MAA believes that new supply deliveries will decline later this year and into 2025 as the market absorbs all the new units currently coming online. This catalyst should "fuel a strong and quick rebound in rent performance," according to CEO Eric Bolton.
MAA also has a strong balance sheet, positioning it to capitalize on emerging new growth opportunities. The REIT recently started construction on a new development and bought land to build another project. Those projects are among the four to six it expects to start over the next two years, adding to the five it already has under construction. Add that to rent growth and falling rates, and MAA could produce strong total returns in the coming years. With ample upside catalysts and a growing dividend, you won't regret buying MAA here.
