Three Superb S&P 500 Dividend Stocks Experiencing a 20% Drop, Perfect for Long-Term Investment and Holding
Three Superb S&P 500 Dividend Stocks Experiencing a 20% Drop, Perfect for Long-Term Investment and Holding
The S&P 500 has surged approximately 25% within the past year. This rise in value is attributed to a robust economy and lessening inflation, which in turn allowed the Federal Reserve to begin decreasing interest rates.
Nevertheless, not every stock has experienced growth coinciding with the broader market's bull run. Some prominent real estate investment trusts (REITs) have dropped about 20% from their previous peak, including Realty Income (-0.77%), Prologis (-1.54%), and Extra Space Storage (-1.01%). Part of this downfall is due to the Federal Reserve's choice to lessen the pace of future rate reductions, given the economy's continued strength and lack of significant cooling in inflation.
Consequently, these exceptional dividend stocks now provide even more substantial dividend yields, making them excellent investment opportunities for purchasing and holding for an assumed lifetime of passive dividend income.
Simplified Perfection
Realty Income has impressively elevated its dividend over the years. The diversified REIT recently distributed its 128th dividend increase since its 1994 debut on the public market. It boasts 109 consecutive quarterly dividend increases and a 30-year streak of boosting its dividend. During this period, Realty Income's dividend has grown at a 4.3% compound annual rate.
With its stock price decreasing by roughly 20%, this remarkably consistent dividend now yields roughly 6%. This yields significantly more than the S&P 500's 1.2% dividend yield.
Realty Income appears well-equipped to expand its dividend in the future. Its portfolio generates robust cash flow due to its concentration on owning single-tenant properties that are net-leased to top global companies. Tenant leases obligate them to cover all operating expenses, including routine maintenance, property taxes, and building insurance. Realty Income distributes a conservative proportion of its stable cash flow in dividends (75% of its adjusted funds from operations), leaving more cash available to invest in income-generating properties. Its strong financial health and solid balance sheet should enable Realty Income to acquire additional income-producing properties and continually boost its high-yielding dividend.
Predominant Dividend Growth
Prologis has demonstrated outstanding dividend growth in recent years. This prominent industrial REIT has grown its dividend payment by 13% at an annual compound rate over the last 5 years, exceeding the dividend growth rates of both the S&P 500 and the REIT sector average (5% each). Its dividend currently yields nearly 4%, in part due to its stock's approximately 20% decline in value.
Prologis has benefited from the growing demand for warehouse space, driven in part by the increasing adoption of e-commerce. Companies with significant online sales require around three times as much space per $1 billion of sales compared to brick-and-mortar stores due to factors such as a more extensive product variety, increased inventory, and other considerations.
Prologis is exceptionally well-positioned to capitalize on the ongoing expansion of warehouse demand. With a substantial portfolio of over 5,600 buildings and 1.2 billion square feet of rentable space in 20 countries, Prologis is primed to leverage this growth. Additionally, it maintains a massive land bank sufficient to support $41 billion of future development. Prologis is also diversifying its business by expanding into areas such as sustainable energy, digital infrastructure, and providing additional services to its tenants. Prologis' strong balance sheet further bolsters its position to continue delivering above-average dividend growth.
Enhanced Dividend Growth
Extra Space Storage has been an outstanding dividend growth performer over time. This leading self-storage REIT increased its dividend by approximately 245% over the last 10 years. Its dividend currently yields over 4%, largely due to its stock's roughly 20% drop in value.
Extra Space Storage has capitalized on various growth drivers. It has leveraged a steady increase in demand for storage (11.1% of U.S. households currently utilize storage, up from 5.5% two decades ago). This has fueled revenue growth at its existing properties while enabling the REIT to expand its portfolio. Extra Space Storage has consistently acquired properties from developers and other REITs, including purchasing Life Storage for $15 billion last year. Additionally, it manages the sector's largest third-party self-storage management business for other property owners, which allows it to control a significant share of the U.S. storage market (14%).
Extra Space continues to have ample room to grow. Its fortified balance sheet should enable it to continue consolidating the sector (approximately 43% of the U.S.'s storage capacity is institional-quality properties not currently owned by a REIT). Extra Space can also further expand its third-party management platform and bridge lending/preferred equity funding program for developers, both of which often pave the way for acquisition opportunities. This growth should empower Extra Space to continue implementing its dividend.
Despite the Federal Reserve's decision to slow down the pace of future interest rate reductions, some investing opportunities still offer attractive dividend yields. For instance, Realty Income's stock price decline of about 20% has resulted in a dividend yield of approximately 6%, significantly higher than the S&P 500's 1.2% dividend yield.
In the realm of industrial REITs, Prologis has demonstrated exceptional dividend growth over the past 5 years, with an annual compound rate of 13%, driven in part by the increasing demand for warehouse space due to e-commerce. This growth has enabled Prologis to maintain a dividend yield of nearly 4%.