Sales during Holidays: Top 3 Dividend Stocks with High Yields to Consider Post-Price Drop
The stock market took a dive this week due to the Federal Reserve adjusting its predicted interest rate reductions for 2025 to only two quarter-point decreases, less than the market had anticipated. This change in expectation negatively impacted more rate-dependent stocks, such as Real Estate Investment Trusts (REITs), which offer higher-yielding dividends.
This rate-cut decision has negative connotations for individuals looking to purchase a home or refinance their high-interest mortgages. However, it's beneficial for investors seeking additional income by acquiring high-yielding dividend stocks at reduced prices. Three such stocks currently offering a discounted Fed-inspired holiday sales include Realty Income (-0.77%), Brookfield Infrastructure (-2.20%) (-1.03%), and Vici Properties (-0.65%).
Top-notch real estate
Realty Income's share price has dropped approximately 5% over the past week, plummeting nearly 20% beneath its highest point for the year. This dip has increased its dividend yield to 6%, significantly higher than the S&P 500’s 1.2% yield.
Realty Income's high-dividend distribution is backed by a robust foundation. The REIT generates stable rental income from a high-quality portfolio of retail, industrial, and gaming property with net leases. These leases require tenants to cover all facilities' operating expenses, encompassing building insurance, routine maintenance, and real estate taxes. Realty Income then pays out approximately 75% of its steady cash flow as dividends, while retaining the remainder to finance new property investments. Notably, Realty Income boasts one of the strongest balance sheets in the REIT sector.
Over the past three decades, Realty Income has maintained a remarkable growth record, delivering 30 consecutive years of dividend raises and only one decline in Funds from Operations (FFO). Its financial flexibility and addition of a newly launched private investment fund position Realty Income well for long-term growth in 2025, ensuring continued dividend income growth alongside its usual 5% annual growth rate.
Substantial total return potential
Over the past week, shares of Brookfield Infrastructure have fallen approximately 10%, bringing its value to a 17.5% decrease from its highest yearly peak. This decrease has raised Brookfield's dividend yield to a substantial 4.4%.
Brookfield's dividend is underpinned by a solid foundation. About 85% of the global infrastructure operator's Free Cash Flow (FFO) is derived from contracted or regulated assets, with 85% protected against or indexed to inflation. Brookfield allocates 60-70% of its consistent cash flow towards dividends. Furthermore, the company boasts a strong investment-grade balance sheet.
Brookfield is experiencing significant growth, with expectations of delivering a minimum of 10% yearly FFO per share growth in the current year, fuelled by powerful organic growth drivers and its effective capital recycling strategy. This growth is expected to continue, propelling double-digit FFO per share growth in the foreseeable future. Currently, Brookfield boasts a record organic capital project backlog of $8 billion and another $4 billion in developments underway.
Meanwhile, its ample investment pipeline remains robust, ensuring it can meet its goal of increasing its dividend by 5-9% per year for the long term (extending its 15-year streak of dividend growth). With its earnings expanding at a double-digit rate and its dividend yield around 4%, Brookfield seems poised for mid-teens annual total returns over the coming years.
Robust embedded growth
Real estate operator Vici Properties' share price has declined about 8% this past week, now sitting at a significant 15% below its highest point in 2022. This decrease has increased its dividend yield to an attractive 6%.
Having recently boosted its dividend distribution by 4.2%, Vici Properties has maintained its growth streak by raising its payout in seven consecutive years. Since its establishment, Vici Properties' dividend has grown at a compound rate of 7% annually, surpassing its competitors with triple-net lease (NNN) property focuses.
Vici Properties boasts financial stability, with a reasonable dividend payout ratio of 75% of its FFO and an investment-grade balance sheet. Moreover, it has ample growth opportunities ahead, benefiting from partnerships with experiential providers, which ensure a consistent stream of investment prospects. This includes the rights of first refusal or the option to acquire multiple properties from its current partners and long-term financing partnerships.
2025's enduring income-boosting offer
By slashing interest rates, the Federal Reserve has effectively gifted income investors access to lower-priced top-tier dividend stocks, enabling them to lock in higher dividend yields and secure higher income in the years ahead. These stocks' long-term growth potential further justifies their appeal as attractive holiday season investments.
This rate cut decision also encourages individuals who are skilled in finance and investing to allocate their resources to purchasing dividend stocks, as the reduced prices of high-yielding stocks present an opportunity for higher returns in the future. Furthermore, the Federal Reserve's move to adjust interest rates may motivate investors to explore investment options within the Real Estate Investment Trusts (REIT) sector, such as Realty Income, due to its increased dividend yield.
