The stock market hasn’t been a comfortable place for investors this year. While 2023 started with a bit of a bounceback, volatility has returned heading toward the spring on concerns about weakness in the banking industry.
The market’s malaise can make it challenging for investors. However, they can ease some of that discomfort by taking advantage of the opportunity to buy shares of high-quality companies on sale. Three that stand out to a few Fool.com contributors right now are Realty Income (NYSE: O), Tanger Factory Outlet Centers (NYSE: SKT) and Alexandria Real Estate Equities (NYSE: ARE), and . Here’s why they think these dividend stocks are great buys amid all the turmoil.
The steady growth continues
Matt DiLallo (Realty Income): Realty Income has helped provide some comfort to its investors this year. The leading real estate investment trust (REIT) has already increased its monthly dividend payment twice in 2023. They marked the 119th and 120th times Realty Income has increased its dividend since its public market listing in 1994.
Realty Income should have no problem continuing to raise its dividend in the future. The REIT has already unveiled several acquisitions this year. Those deals will add to rental income, giving the company more cash flow to keep increasing the dividend.
Earlier this month, Realty Income agreed to acquire up to 415 single-tenant convenience store properties in the U.S. from leading U.K. convenience store retailer EG Group in a $1.5 billion deal. Meanwhile, in February, Realty Income agreed to invest up to $1 billion in developing vertical farms for Plenty Unlimited. Those deals followed an acquisition agreement signed with CIM Realty Finance Trust at the end of last year. That transaction will see the company acquire as many as 185 single-tenant retail and industrial properties for $894 million.
Realty Income has ample financial flexibility to continue making acquisitions while boosting its dividend. It has a relatively low dividend payout ratio for a REIT (75% of its adjusted funds from operations, or AFFO, in the fourth quarter) and one of the highest credit ratings in the REIT sector.
While shares of Realty Income haven’t been immune to this year’s market swoon — they’re down about 11% from their high point this year — that decline has only made the dividend more attractive. Realty Income now yields about 5%. With more dividend growth ahead, it’s a great stock to buy amid the current market turmoil.
Tanger’s outlet business model allows it to operate with lower costs
Brent Nyitray (Tanger Outlets): Tanger Outlets is a shopping mall REIT that focuses on acquiring, developing, and owning outlet centers. As of Dec. 31, Tanger operated 29 outlet malls containing 2,200 stores with a total of 11.4 million square feet of gross leasable area. The company also has an interest in six other outlet centers. The outlet concept involves selling branded products at a substantial discount to the prices in department stores and other retailers. The outlet centers are generally in the exurbs some distance from urban shopping malls. This means operating costs are lower than the competing department stores, which allows tenants to charge lower prices.
Despite the problems in the banking sector, the consumer remains strong due to a historically tight labor market. Workers are getting raises and this is translating into higher spending. Despite the headlines in the business press about job cuts in finance and tech, unemployment remains at or near 50-year lows. Like most retail REITs, Tanger was hit by the COVID-19 pandemic, but occupancy has returned to 97%, about where it was pre-pandemic.
Tanger has a well-diversified tenant base. Gap, which owns The Gap, Old Navy, and Banana Republic stores, was the biggest tenant and accounted for 7% of gross leasable area and 5.3% of base rent. Other tenants include SPARC Group and Premium Apparel. Tanger has an 8.5% occupancy cost ratio, which is the lowest in retail, including e-commerce. Rental growth has been increasing at a blended rate (which includes renewals and new leases) of 10%. As long as the labor market remains strong, Tanger should hold up well. The stock has a dividend yield of 4.8%.
This life sciences REIT is beaten down, but built to spring back
Marc Rapport (Alexandria Real Estate Equities): Now’s a good time to consider buying shares of Alexandria Real Estate Equities. Just like planting seeds in spring, your investment could take a while to bloom, but this REIT will begin paying immediate dividends.
Alexandria is an office REIT with a growing portfolio of about 75 million square feet of lab and other life sciences space clustered in office campuses in and around Boston, San Francisco, San Diego, Seattle, North Carolina’s Research Triangle, and Washington, D.C.
This life sciences landlord has been through a rough winter, with a share price that’s down about 18% year to date. But its payouts continue apace, underpinned by steadily rising funds from operations (FFO) that handily support growing dividends. Its payout ratio, or how much FFO is devoted to paying dividends,currently stands at a modest 58% and paving the way for more dividend increases.
Despite its recent share price dip, this REIT continues to report high occupancy rates and rapidly rising rents, and has been on a longtime roll, easily doubling the total return of the S&P 500 since the REIT’s initial public offering in 1997. As the chart below shows, it even has edged out Walmart over that time.
Data source: YCharts
Alexandria has raised its dividend consistently over that time, too, including by just more than 100% in the past 10 years, and now yields about 4%. The stock remains a good choice for passive income investors looking to buy at a nice price before the eventual spring back.
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Brent Nyitray, CFA has no position in any of the stocks mentioned. Marc Rapport has positions in Alexandria Real Estate Equities and Realty Income. Matthew DiLallo has positions in Realty Income. The Motley Fool has positions in and recommends Alexandria Real Estate Equities and Walmart. The Motley Fool recommends Realty Income and Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
