With the stock market falling further after the recent Federal Reserve meeting, it may not seem like there's much to love about the stock market right now. But investors shouldn't forget that the stock market has rebounded from all bear markets in the past, eventually going on to surpass pre-bear market highs.
Rather than sitting on the sidelines waiting for a rebound, investors should focus on buying high-quality stocks at a discount that can provide some stability, income, and growth opportunities in the interim.
Three dividend stocks that offer just that are National Retail Properties (NNN 0.44%), W.P. Carey (WPC 0.27%), and Public Storage (PSA -0.02%). Here's a closer look at the stocks and why investors should fall in love with them this autumn.
1. The super-stable net lease REIT
Recessionary periods can be tough on retail companies, so it may be surprising to see real estate investment trust (REIT) National Retail Properties on the list of stocks to fall in love with right now. But the net lease REIT has a lot of things going for it.
The company owns and leases 3,300 single-tenant retail properties to a wide range of tenants in 48 states across the country. Its portfolio of assets is carefully selected from top-tier markets that historically maintain high occupancy.
Because net leases pass most of the financial responsibilities of the property onto the tenant and lease terms can range from 10 to 20 years, it's a super-reliable business to be in, especially with single-tenant properties. Today its portfolio is 99.1% occupied, and it collected 99.7% of all rents in the second quarter of 2022.
Plus, it's got a great track record. It's been in operation since 1984, meaning the company has overcome its fair share of recessions before and still managed to raise its dividend 33 years in a row. It provided a total annualized return of 10% over the past 25 years, outperforming the S&P 500.
A recession could temporarily hurt the company if its tenants are impacted by slowed retail spending. But its conservative payout ratio of 68% and strong balance sheet mean it should be able to more than withstand the changes in the economy.
2. Offering safety through diversification
Just as National Retail Properties benefits from having diverse income streams, so does W.P. Carey. This diversified net lease REIT owns just over 1,300 properties in the U.S. and Europe in a wide range of commercial real estate (CRE) industries.
Its largest asset mix is industrial real estate and warehouses, one of the fastest-growing and highest-demand CRE industries today. It also has exposure to office, retail, and self-storage facilities.
Diversification helps hedge risk, a big plus given today's economic uncertainty, but it also means growth isn't massive for the company. Its average base rent (ABR) increase this year is only 3%, which is modest compared to other industrial REITs.
However, if one asset class goes belly-up temporarily due to oversupply, demand, or curtailed spending, W.P. Carey has exposure to other industries to help offset those losses. Its occupancy is strong today at 99.1%, and its balance sheet has no major areas of concern given its cash on hand and debt.
W.P. Carey is also a strong dividend payer, having increased its payout each year for the past 24 years. Today its yield is around 5.3%.
3. An inflation- and recession-resilient play
Public Storage -- the largest self-storage REIT in the industry -- isn't a massive dividend payer. The company hasn't raised its dividend since 2017 and offers investors a much smaller 2.6% yield. But what it does bring to the table is a strong track record, scale, and safety.
In the last 50 years, Public Storage has done a tremendous job of growing its portfolio without compromising value for shareholders. Unlike other REITs that rely heavily on leverage and debt to grow their portfolio, Public Storage has managed to fund its growth more organically, using cash and net operating savings to fuel its acquisitions.
Its net operating margin is over 80%. Despite growing its portfolio by 25% from 2019 to today, it still has one of the lowest debt ratios in the REIT industry, with $1 billion in liquidity. Its "A" credit rating gives it favorable terms for the financing it holds, which is important in a rising-interest-rate environment like we're seeing today.
While it's certainly not immune to recessionary impacts, self-storage is known for being a recession-resilient industry. Increased layoffs or downsizing due to a recession often drives business to storage facilities. Plus, self-storage operates on short-term leases, so Public Storage is able to adjust its leases frequently to offset rising inflation -- which makes it the perfect safety buy for today's economy.
All three of these dividend stocks are down year to date, making this fall a fantastic time to buy and hold these stocks for the long term.
