This year has flown by. Summer is winding down as we prepare to flip the calendar to September. The fall brings the return of cooler weather, vibrant colors, and favorite flavors.
This fall could also bring some changes to the stock market and certain companies. Now's a good time to prepare for some potentially compelling investment opportunities that could emerge in the coming months. Vanguard Real Estate ETF(NYSEMKT: VNQ), Medical Properties Trust(NYSE: MPW), and Weyerhaeuser(NYSE: WY) stand out to a few Fool.com contributors for catalysts they have on the horizon. Here's why investors will want to put these dividend stocks on their fall watchlist.
This passive-income play offers diversity, liquidity, and a sale price.
Marc Rapport (Vanguard Real Estate ETF): Since their creation in the 1960s, real estate investment trusts (REITs) have proved to be a great way to invest in real property and generate real income without the hassles of direct ownership.
REITs, which own pools of income-producing property and are obligated to pay most of their taxable income out as dividends, tend to be defensive investments, but they're also very sensitive to interest rate increases, since they're so dependent on debt to generate cash to grow.
That makes now, with the rate environment perhaps turning the other way in the not-too-distant future, a good time to buy REITs, and a great way to dip your toes in those waters is through the Vanguard Real Estate ETF.
This exchange-traded fund tracks the MSCI US Investable Market Real Estate 25/50 Index and currently holds about 160 of the 225 or so REITs that trade on the public exchanges. It's a weighted portfolio, so its three largest individual REIT holdings are the three largest out there by market cap: warehouse owner Prologis, telecom infrastructure giant American Tower, and data center leader Equinix.
Owning shares of this real estate REIT, therefore, provides an easy way to diversify both your income stream and your capital growth potential. The share price is currently down about 20% year over year, but that's pushed the yield up to about 4.7%.
By comparison, the Vanguard S&P 500 ETF is yielding but 1.54%. That ETF's overall total return has outpaced its REIT counterpart, but VNQ shines as an income play, pairing the stability of the commercial real estate sector with the liquidity and diversification of an ETF. And it's now selling for an attractive price.
Taking a big step toward improving its financial health
Matt DiLallo (Medical Properties Trust): MedicalProperties Trust's financial health has deteriorated over the past couple of years because of surging interest rates and the financial challenges facing its top tenants. These issues have put significant pressure on its balance sheet and stock price. Things have gotten so bad that the healthcare REIT recently slashed its dividend by nearly 50%. Even with that cut, the REIT yields almost 9%.
While painful, the dividend cut was the right move. It will put the payout at a more sustainable level at less than 60% of its adjusted funds from operations. That will enable the hospital owner to retain cash that it can use to shore up its balance sheet.
In addition, the REIT plans to pursue more asset sales (including non-leased and non-real estate assets) to further accelerate its deleveraging. It also intends to consider opportunities to refinance debt to get ahead of a wave of maturities in the 2025 to 2027 timeframe. These future moves would help return its balance sheet to full health, which should take some pressure off its stock price.
Medical Properties Trust isn't out of the woods yet. However, it has taken a notable step to turn things around and accelerate its healing. If it can complete additional deleveraging transactions, it would help reduce the risk that the REIT would need to cut its dividend again. Overall, it's an interesting stock to watch this fall. A healthier financial profile would make Medical Properties Trust a more enticing option for income-seeking investors to consider buying in the coming months.
New home construction is growing
Brent Nyitray (Weyerhaeuser): Weyerhaeuser is a timber REIT that owns or controls 10.6 million acres of forest in the United States and manages 14.1 million acres of timberland in Canada. The company is a major producer of wood products, including structural lumber, oriented strand board, and engineered wood products, all used primarily in residential construction.
Residential construction has lagged ever since the Great Recession. According to the National Association of Realtors, there is an underbuilding gap of 5.5 million to 6.8 million units, which represents about four years' worth of housing starts. With interest rates pushing up mortgage rates, we have seen sales of existing homes fall as many would-be sellers can't afford move into a different house and take up a mortgage at 7.5%. The result of the rate "lock-in" effect is that the inventory of existing homes for sale is extremely limited. In July, existing home sales fell 16.6% year over year, while new home sales in June were up 23.8%.
New housing construction avoids this problem, as there is no current occupant that has to be persuaded to move. The homebuilders have been stalwart performers this year, and Warren Buffett's Berkshire Hathawayjust took a position in three U.S. homebuilders. Since homebuilders have different markets and price points, it can be difficult to predict which ones will perform best.
Weyerhaeuser is a way to bet on homebuilding without having to make these choices. Weyerhaeuser pays a quarterly dividend of $0.19 and also pays an annual special dividend based on earnings in the prior year. Last year, that special dividend was $0.90, which gives the company an annualized dividend yield of 5%.
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Brent Nyitray, CFA has no position in any of the stocks mentioned. Marc Rapport has positions in Prologis and Vanguard Specialized Funds-Vanguard Real Estate ETF. Matthew DiLallo has positions in American Tower, Berkshire Hathaway, Equinix, Medical Properties Trust, Prologis, and Weyerhaeuser and has the following options: short October 2023 $36 calls on Weyerhaeuser and short September 2023 $8 puts on Medical Properties Trust. The Motley Fool has positions in and recommends American Tower, Berkshire Hathaway, Equinix, Prologis, Vanguard S&P 500 ETF, and Vanguard Specialized Funds-Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
