The reliable payouts and dividend growth potential of dividend-paying stocks year after year make them a fantastic source of passive income streams. Unfortunately, not all dividend stocks offer the same level of long-term reliability.
Some stocks are notorious for cutting their dividends when times are tough. Given that we are on a tough economic footing, reliability is more important than ever. Three stocks that offer great reliability to investors today are Digital Real Estate Trust (NYSE: DLR), Weyerhaeuser (NYSE:WY)and WP Carey (NYSE: WPC).
Here’s a closer look at these companies, which Motley Fool contributors say are their best dividend stocks to buy and keep forever.
Digital Realty Trust’s long horizon is why it’s a winner
Kristi Waterworth (Digital RealtyTrust): We live in a digital world that is only increasing in size and depth. There’s almost nothing you do in your day now that doesn’t somehow touch the digital world. Most people are familiar with big digital companies like social media companies, software giants, and even tech companies that help develop new hardware. But fewer know the layer that supports all this.
Server farms – infinite banks of digital storage in physical facilities – are the reason we can integrate so much technology so seamlessly into our lives. This is why Digital Realty Trust is a dividend stock that I will hold forever. It is not just a stock, but a REIT data center which offers a whole different kind of real estate: the digital kind, and it has grown steadily since its first IPO in 2004.
Today, Digital Realty Trust’s quarterly dividend sits at $1.22, yielding 4.64%, but it started at just $0.1563 in January 2005. Although the company’s earnings are influenced by digital trends, it has so far always increased dividend distributions, and currently has a compound annual growth rate of 10%, which is not shabby at all.
This is largely due to Digital Realty’s conservative leadership and forward-looking approach to leasing space. Currently, approximately 50% of its revenue comes from 20 massive, investment-grade tenants with remaining lease terms of nearly six years.
But that’s only half the story. As of the third quarter, the REIT currently has 44 projects under development in 27 cities around the world, all set to go live from the fourth quarter of 2022 through the third quarter of 2024.
Four of these data centers are already fully leased, and on average, facilities that are actively leasing (many have yet to begin accepting lease commitments) have more than 60% of their space reserved. These are massive facilities spanning over 650,000 total square feet per site.
Although spending within the company was high last year, due to new acquisitions and the construction of new facilities, these pre-leases show that there is a huge appetite for what Digital Realty Trust has to offer, and that they offer it at a reasonable price. . That’s what they are and what they do, and that’s why they will always be in my portfolio.
Insulate your portfolio from inflation with trees
Mike Price (Weyerhaeuser): Weyerhaeuser is not your ordinary REIT. It doesn’t own industrial buildings or apartment complexes, it owns trees. The REIT is one of the largest owners of timberlands in the world.
Its trees are processed into lumber, oriented strand board (OSB) or other engineered wood products. In the past, the company had several other segments to convert wood into other related products, such as paper, but in recent years it has pursued a strategy focused on wood and its closest by-products.
Logging companies can be great investments if managed by smart capital allocators. Management teams can plan to sell lumber when the market is in their favor, then use that money to buy back stock when it’s not producing exceptional returns. Of course, these returns can be jerky. If lumber prices or the housing market suffer, the stock likely will too. But good management teams use that time to buy back shares.
In the case of Weyerhaeuser, the stock rose from $20 per share to over $40 after the pandemic as inflation fears intensified. Once interest rates started to rise in 2022, the stock price fell from $40 to $30 and management started buying back shares.
From the beginning of 2021 to the end of September 2022, the company reduced its debt by $375 million and returned more than $2 billion in cash to shareholders thanks to the windfall profits created by the housing market surge. As long as the stock price remains around $30, expect redemptions to continue. The company has $1 billion in authorized buybacks. It currently yields 2.33%.
That’s what you want with Weyerhaeuser. It’s not really a basic holding company. It is a defensive stock that does well during periods of inflation and delivers shareholder value during downturns.
WP Carey’s Diverse Portfolio Adds to Its Reliability
Liz Brumer Smith (WP Carey): WP Carey is a diversified net lease REIT, meaning it owns and leases a variety of properties, such as industrial warehouses, self-storage facilities, retail space and office buildings. As of the second quarter of 2022, the company held interests in or owned approximately 1,350 different properties in Europe and North America, making it one of the largest net lease operators in the industry.
The net rental industry has a solid reputation for reliability and resilience during tough economic times. Triple net leases (NNN) in particular shifts most of the responsibilities to tenants, which means overhead is low for WP Carey. Additionally, NNN leases have built-in rent escalations, which helps its revenue grow over the term of the leases, which can extend from 7 to 10 years, or even longer.
Its diversified portfolio also contributes to the reliability of its income. By specializing in a wide range of industries, it reduces its exposure to economic impacts for each of the respective commercial real estate industries. For example, if retail sales start to falter, it still has self-storage and industrial warehouses to support its revenue should tenants default.
The company has increased its dividend every year for the past 25 years. This long-standing track record of dividend increases would give the stock Dividend Aristocrat status if he was part of the S&P500. Since it’s not in the S&P, it’s often overlooked despite its incredible dividend reliability.
The occupancy rate of its portfolio remains high at 99.1%. Its 83.5% dividend payout is safe given that the company has manageable debt ratios and $103 million in cash. WP Carey also offers the highest dividend yield of these three stocks, at around 5.6%.
10 stocks we like better than Digital Realty Trust
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They have just revealed what they believe to be the ten best stocks for investors to buy now…and Digital Realty Trust was not one of them! That’s right – they think these 10 stocks are even better buys.
* Portfolio Advisor Returns as of September 30, 2022
Kristi Waterworth has positions in Digital Realty Trust. Liz Brumer Smith has positions in Digital Realty Trust. Mike Price holds positions at Weyerhaeuser. The Motley Fool fills positions and recommends Digital Realty Trust. The Motley Fool recommends WP Carey. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.