When you have a smaller investment budget, it makes more sense to chase risky growth stocks. These companies have a higher chance of burning your money, but they are the best way to turn a small bet into a meaningful return that can impact your life. On the other hand, large investors can afford to sit back and let their money work for them -- prioritizing safety and income instead of growth.
Dividend stocks feel more impactful when you have a bigger budget. For example, $1,000 put in a stock with a yield of 5% only gives you $50 per year. Bump that up to $1 million, and that 5% is giving you $50,000 per year -- more than the U.S. median earnings in passive income. Let's discuss why Realty Income (O +0.35%) and Alpine Income (PINE 1.27%) could be great ways to implement this strategy in your portfolio.
Realty Income
Realty Income is a real estate investment trust (REIT), which is a special type of investment vehicle that can avoid most taxes if it returns the majority of profits to shareholders through a dividend. REITs allow U.S. investors to access the legendary wealth creation of real estate without dealing with the headaches like tenants and evictions. The company stands out because of its safe and recession-resistant business model.
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Key Data Points
While Realty Income has some minor exposure to somewhat speculative growth opportunities like data centers and casinos, the bulk of its real estate portfolio focuses on boring but consistent industries like grocery stores, dollar stores, and auto repair shops.
These types of businesses focus on consumer staples, which means they can perform well even during a recession.
Realty Income further boosts its safety with triple net leases, which shift burdens like property tax, maintenance, and insurance to the tenant. This strategy allows the company to protect its business model from inflation to maintain stable and predictable cash flows. With a yield of 5.26%, Realty Income's dividend far exceeds the S&P 500 average of just 1.33%. And the company sweetens the deal by distributing on a monthly basis.
Alpine Income
Like Realty Income, Alpine Income is another REIT that uses triple net leases to generate consistent real estate income for its shareholders. While the company is arguably less safe than its large blue chip counterpart, it makes up for this with a larger payout and substantially more long-term growth potential as it scales up its business model.
With a market cap of just $250 million, Alpine Income is less than half of 1% the size of Realty Income. And as a smaller company, it will be much easier for Alpine Income to find quality real estate deals that can push the needle on growth. Management has announced a slew of acquisitions in recent months, including eight commercial properties purchased for a total of $39.8 million in the fourth quarter.
Image source: Getty Images.
The new deals are centered around Alpine's strategy of purchasing free-standing single tenant properties, leased to industry-leading tenants like Walmart, Sam's Club, and Lowe's. As of the most recent quarter, the company has 128 properties in its portfolio with an impressive 99% occupancy rate -- a testament to its focus on reliable tenants.
Alpine Income offers a dividend yield of 6.5%, but its stock price growth potential is arguably more exciting as the company continues to scale up.
Is there a downside to dividend stocks?
Dividends are a great way to get safe and consistent returns in the stock market, making them ideal for retirees who want passive income. That said, unlike stock buybacks (which are another way companies return cash to investors), they are taxed as regular income instead of capital gains. This means it is best to hold stocks like Alpine Income and Realty Income in a tax-advantaged account such as an IRA or a 401(k).
