A lot of reliable dividend-paying stocks have been pushed into ultra-high-yield territory temporarily, thanks to the inverse relationship between dividend yield and pricing. But these high yields won't stick around forever. The market has been trending positively as we near the end of the year, and eventually, a bull market will return.
Investors who want to capitalize on today's low pricing and high yields should consider adding these three no-brainer dividend stocks to their portfolios before 2023.
1. Digital Realty Trust: Prime exposure to all things digital
Data centers are like the physical homes for cloud-based services and products. Everything from online shopping, watching TV, browsing on our mobile phones, or working remotely relies on data centers to operate efficiently.
Digital Realty Trust (DLR 1.50%) is one of the largest data center operators in the world, having ownership in over 300 facilities in roughly 26 countries. The real estate investment trust (REIT) owns, develops, and leases data center space to a host of different big-name companies, earning its revenue from long-term leases.
Demand for data center space remains robust despite recent negative comments from a short seller, which hurt the company and others within the industry this year. In the third quarter of 2022, the company generated $176 billion in annualized GAAP revenue thanks to new bookings. And that doesn't include new leases from its latest acquisition, South African-based data center company Teraco, which closed in August of 2022.
Growth for the company year over year remains somewhat flat. This is largely due to a slowdown in demand compared to recent years. The pandemic spurred massive demand for data centers as people shifted to adapt to remote work and more online activities. But if we think long term, demand for data center services isn't stopping. The stock is already on major sale, down 36% this year while paying a 3% yield. And it's worth noting Digital Realty Trust has also maintained 16 years of dividend increases, so continued dividend growth is likely.
2. Agree Realty: This net lease REIT pays a nearly 4% yield
Agree Realty (ADC 1.41%) is a net lease REIT that owns and leases roughly 1,700 high-quality retail properties to primarily investment-grade tenants across the country. The net lease industry is known for its long-term reliability because it places nearly all responsibilities of the property onto the tenants while creating steady income for the landlord over a 10-plus year period.
Agree Realty has outperformed the S&P 500 over the past 10, 15, 20, and 25-year periods. And right now the company is growing aggressively. Agree Realty has spent over $1 billion for the nine months ended 2022 on new acquisitions while also growing its ground lease business. This is on top of the $2.7 billion in spending in 2020 and 2021. In its latest earnings, the company saw its adjusted funds from operations, a metric that works similarly to earnings per share, rise by 7.8% in response. And I believe that number should continue growing steadily.
The company is extremely well funded and has very low debt ratios, meaning it should be well positioned to not only survive if a recession is to come in 2023 but to maintain its dividend growth. Today the stock is paying around a 4% yield.
3. Innovative Industrial Properties: The premier cannabis REIT
Innovative Industrial Properties (IIPR 0.06%) is the perfect mix of income and growth opportunities that I love in stock. The cannabis REIT uses sale-leaseback agreements to buy industrial properties from existing medical marijuana operators, leasing them back to them over long-term net lease agreements.
The cannabis industry may be cash-heavy but operators aren't able to fund major expansion efforts, property improvements, or acquisitions using traditional financing from banks or lenders. At the same time, marijuana remains illegal at the federal level. So the liquidity a company like Innovative Industrial Properties can offer is extremely attractive. The company has grown tremendously over the past seven years. But its expansion speed is slowing as the cannabis market cools, and the company faces a lawsuit and default from a tenant.
However, it's still a fantastic income stock for the long haul. It's raised its dividend payout by roughly 1,000% since its IPO in late 2016 and pays a dividend yield of over 6% today. The stock is down 57% thanks to a pessimistic response from investors in light of its recent challenges. Long term, I see this stock rebounding notably and maintaining its healthy dividend payouts well for years to come, making today's discounted pricing the perfect time to buy in.
