Small-budget investing can pay off in the long run, and even an amount of $500 could be a great place to start. Also, investors who employ dollar-cost averaging (DCA) often have a budget in the $500 range when making periodic purchases.
Fortunately, the market offers plenty of reasonably priced options for investors with this kind of budget. It will allow one to not only buy stock in Amazon (NASDAQ: AMZN), Dutch Bros (NYSE: BROS), and Realty Income (NYSE: O) but also take advantage of potentially lucrative bargains that could pay off in the long run. Let's take a closer look at this trio of companies.
1. Amazon
Admittedly, investors may have a difficult time perceiving Amazon as "reasonably priced." Most investors struggle to see stocks with a 40 price-to-earnings (P/E) ratio as cheap.
However, others may see that as cheap considering that the stock rarely trades below 50 times earnings. Also, despite a market cap in the $1.75 trillion range, it offers opportunities for growth that resemble those of much smaller companies.
Consumers know it best for online sales. Still, this is likely the least profitable part of the business. Instead, its cloud-computing arm, Amazon Web Services (AWS), accounts for the majority of its operating income.
The company does not break down the operating income of its other businesses. Nonetheless, its subscription, digital advertising, and third-party seller businesses consistently report double-digit revenue growth, which should bode well for Amazon stock.
In the first half of the year, revenue of $291 billion rose 11%. Also, keeping the growth of operating expenses in check led to a net income of $24 billion during that period. That's an increase of 141%.
Obviously, Amazon will probably not sustain triple-digit income growth long term. Still, its fast-growing business segments and rising income should lead to stock gains over time.
2. Dutch Bros
Dutch Bros has found a niche in the fast-growing but highly competitive beverage market. Its Dutch Classics, drinks based on espresso and half and half, have helped make its drive-thru coffee shops popular. Additionally, Dutch Bros offers teas, lemonades, energy drinks, and other choices to draw customers.
Furthermore, it has some distinct advantages over Starbucks. The fact that it's a drive-thru means it does not have the overhead costs of maintaining indoor sitting areas.
Moreover, unlike Starbucks, it is far from reaching a saturation point in the U.S., which likely means it has years of rapid growth ahead. As of June 30, it operated 912 shops in 18 states, an increase of 158 over the previous 12 months.
Those shops generated $600 million in revenue in the first half of 2024, rising 34% over the same period in 2023. Although Dutch Bros turned profitable last year, its net income attributable to the company was relatively modest, coming in at $19 million for the first two quarters of 2024.
For this reason, the price-to-sales (P/S) ratio is likely a more accurate measure of valuation than the P/E ratio. Currently, Dutch Bros trades at 2.1 times sales, less than the slower-growing Starbucks at 2.3 times sales. This should bode well for Dutch Bros as it continues expanding.
3. Realty Income
Realty Income specializes in leasing single-tenant buildings, typically to well-known, consumer-oriented businesses. As a real estate investment trust (REIT), it pays at least 90% of its net income from operations in dividends in exchange for not being taxed on this income.
That has led to a monthly dividend that has steadily risen over the last 30 years. At around $3.16 per share annually, it pays a dividend yield of surpassing 5%.
Moreover, these tenants tend to be some of the better-known companies, with Walmart, Planet Fitness, and Wynn Resorts among its clients. This business model has given Realty Income an occupancy rate of nearly 99% for its approximately 15,500 properties.
Despite the struggles in the stock, revenue for the first half of the year was $2.6 billion, up 32%. Most of that gain was due to the Spirit Realty acquisition that closed that year, which increased the company's portfolio by about 15%.
Still, that also means much of its growth was organic, and it helped to boost funds from operations (FFO) income, a measure of a REIT's free cash flow, to $1.7 billion, a 25% increase.
Despite its gains, the stock trades at only about 15 times its FFO income. Such a valuation allows investors to buy a growing stream of income at a reasonable price.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Planet Fitness, Realty Income, Starbucks, and Walmart. The Motley Fool has a disclosure policy.
