It's hard to believe it's already September. Autumn is just around the corner, and the weather is starting to cool off as the kids return to school.
Times of change are a good time for investors to reflect on whether they should make any changes to their portfolios. Realty Income(NYSE: O), Invitation Homes(NYSE: INVH), and Kimco Realty(NYSE: KIM) are three stocks some Fool.com contributors think investors should take a closer look at this fall. Here's why they believe investors will quickly fall for these dividend stocks and add them to their portfolios.
Does "O" stand for "oversold" for this dividend star?
Marc Rapport (Realty Income): Now may be just the right time to pick up some shares of a beaten-down real estate investment trust (REIT) that could be oversold now and priced just right for solid gains for years to come.
Realty Income stock is now selling for about $56 a share, off nearly 18% year over year and 30% from its 10-year high. The yield, meanwhile, has jumped to about 5.4%, a level only exceeded in the past decade in the pandemic market collapse and for a time in 2014-2015.
The share price has been driven down of late for reasons that include a rally for riskier high-growth stocks, higher interest rates, and persistent concerns about brick-and-mortar real estate. There are also concerns that Realty Income has simply gotten too big for its own good, making it too hard to find fertile new ground to buy and lease.
But has it? The REIT, which as of the second quarter owned 13,118 properties occupied by 1,303 clients across the U.S. and much of Europe, found enough out there to spend $4.8 billion on nearly a thousand properties in the first two quarters of this year and raised its guidance for the year by a billion dollars to $7 billion.
And in late August, it said it would plunk down $950 million in a joint venture with the non-tradedBlackstone Real Estate Income Trust (BREIT) for a 95% stake in the Bellagio, one of the premier properties on the Las Vegas Strip. That follows last year's $1.7 billion acquisition of the Encore Boston Harbor Resort and Casino from Wynn Resorts.
That might seem like a move away from its core competencies, but Realty Income's deep, proven record should also lend confidence to investors that a record of more than 50 years of uninterrupted dividends and 30 straight years of increases is not likely to end anytime soon.
And that may make this a great time to buy its shares hand over fist and stand ready for when market sentiment shifts.
A rapidly rising payout
Matt DiLallo (Invitation Homes): If you're looking for a new dividend stock to add to your portfolio this month, you'll quickly fall for Invitation Homes. The residential REIT currently offers a 3% dividend yield, double the market's average (as measured by the S&P 500's dividend yield). The REIT has grown that payout at a more than 18% annual rate over the past five years, including by 18.2% earlier this year.
The single-family rental company has more dividend growth ahead. It's benefiting from strong demand for rental housing resulting from preference changes, its focus on high-growth markets, and the high cost of buying. That's keeping occupancy high across its portfolio, enabling it to steadily increase rents. Rent growth has helped drive the company's same-store net operating income up by 46.6% since 2017, significantly faster than the 28.9% national average for multifamily properties.
The company further enhances growth by expanding its portfolio through acquisitions. Invitation Homes acquired a portfolio of almost 1,900 homes for about $650 million during the second quarter. In addition, it bought another 157 homes directly from builders. The company also signed deals to add another 173 homes to its purchase pipeline with builders in the quarter. It now has around $900 million of homes under contract that it expects to acquire in the coming years. That provides some visibility to its future growth.
The company's dual growth drivers should help increase its cash flow, enabling Invitation Homes to continue expanding its dividend at a healthy pace. That attractive combination of income and growth makes it a stock that investors will want to grab this month.
Kimco strikes a deal to buy up a competitor
Brent Nyitray (Kimco Realty): Kimco Realty is a real estate investment trust (REIT) that focuses on open-air, grocery-anchored shopping centers and mixed-use properties. The company focuses on building properties in first-ring suburbs in major metropolitan areas on the coasts and in the Sunbelt. As of June 30, Kimco operated 528 properties with approximately 90 million square feet in gross leasable area.
Kimco recently bought competitor RPT Realty(NYSE: RPT) in a $2 billion transaction. RPT Realty owns or has joint ventures with 56 properties with 13.3 million square feet in gross leasable area. Approximately 72% of Kimco's centers are grocery-anchored, which fits in with Kimco's strategy. The transaction will expand Kimco's footprint in target markets such as Miami, Tampa, and Boston. The transaction is expected to be immediately accretive to funds from operations, which means the transaction is expected to start improving earnings right off the bat. Since the transaction is expected to close in 2024, it will affect next year's numbers.
Kimco is guiding for 2023 funds from operations (FFO) to come in between $1.55 and $1.57 per share. REITs tend to use FFO in addition to net income because depreciation and amortization are big expenses under generally accepted accounting principles. Since depreciation and amortization are non-cash charges, net income tends to understate the cash flows of the company.
Based on current levels, Kimco is trading at 11.9 times 2023 FFO per share, which is a reasonable multiple for a high quality REIT. Kimco pays an annualized dividend of $0.92, which is easily covered by FFO per share. Kimco is a growing defensive retail REIT and an attractive stock for an income investor.
10 stocks we like better than Realty Income
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Brent Nyitray, CFA has no position in any of the stocks mentioned. Marc Rapport has positions in Realty Income. Matthew DiLallo has positions in Blackstone, Invitation Homes, and Realty Income. The Motley Fool has positions in and recommends Blackstone and Invitation Homes. The Motley Fool recommends Realty Income. The Motley Fool has a disclosure policy.
