3 Dividend Stocks to Double Right Now

We are in the last four months of the year. With interest rates likely heading lower for traditional fixed income investments, let’s turn our attention to dividend-paying stocks, which can also reward you with some capital appreciation. Real estate income (A 0.78%), Costco Wholesale (COST -0.76%)and Royal Caribbean Cruises (RCL -1.21%) here are three dividend stocks you might want to consider doubling down on right now.

Yield seekers already know Realty Income. Costco has proven its all-weather appeal with a low but steady payout. You probably didn’t know that Royal Caribbean re-initiated its distribution policy earlier this year. Let’s take a closer look at these three dividend stocks that I also happen to own.

1. Real estate income

Everything about Venitul Realty seems simple. The real estate investment trust (REIT) has a portfolio of more than 15,000 commercial properties that are typically in stable industries. Realty Income estimates that about 90 percent of rent collected comes from businesses that are either recession-proof or immune to the disruptive pressure of e-commerce. Tenants sign triple-net leases, shifting variable costs, including property taxes, insurance premiums and maintenance, away from the Realty side of the obligations.

It’s not just a conservative approach to portfolio construction that keeps things light here. Investors receive their dividend checks monthly. The best income-generating stocks find a way to grow their payouts year after year. Real estate income has seen increases for 107 consecutive quarters.

Image source: Getty Images.

The downside to consistency is the slow growth that comes with the territory. Top organic earnings are modest. Adjusted funds from operations in its latest quarter rose 6%. Yet there is also predictability in the steady cadence of baby steps in the right direction. Realty Income is built to deliver even in high interest rate environments, having grown its returns in 27 of the past 28 years. That doesn’t mean the stock itself won’t benefit when interest rates start to fall later this year.

Realty Income’s current yield of 5.1% is in line with what investors can collect with even less risk through the nation’s highest-paying money market funds right now. How will income investors feel when money market yields start to fall as the Fed begins to move the limbo lower? We already know that Realty Income should continue to move its distributions marginally higher with each passing quarter. Whether the yield gap widens or Realty Income shares rise, investors are positioned to win either way.

2. Costco Wholesale

You don’t see many income investors lining up shopping carts to get into Costco. The deposit club operator has a low yield of 0.5%, even though it has come up with much larger special distributions every few years. However, like Realty Income, it is created for all economic weather reports. If it goes well, people go shopping. If things don’t go so well, people rely on Costco’s low-margin business model to get more value for their money.

Revenue fell 1.5% in fiscal 2009 during the Great Recession, but has been positive for more than 30 years outside of that modest hiccup. An interesting catalyst came in July, when Costco raised its annual membership fee by 8 percent, its first increase in seven years. Stocks initially fell because the market was hoping for more growth, but I applaud the conservative approach.

Costco’s in-store prices are so shopper-friendly that it generates more operating profit from its membership fees, which make up just 2 percent of its revenue, than it does from the balance of its business. If the Fed begins to ease in the coming weeks, it will be due in part to easing inflation concerns, but also to heightened recession fears. Costco can’t afford to lose customers because it wanted an extra $5 a year from its shoppers.

3. Royal Caribbean

The nation’s most valuable cruise line by market capitalization has become the first to reinstate its dividend. This is not a surprise. Royal Caribbean is historically the best of the big three cruise lines in terms of margins and growth. The 1% yield won’t make waves, but Royal Caribbean’s biggest gains will come through the stock itself.

Bookings are now well above pre-pandemic highs, but stock is surprisingly cheap. You can buy Royal Caribbean at 14 times this year’s earnings and just 12 times next year’s target. The cherry on top here is that the cruise line has consistently posted double-digit percentage beats on the bottom line over the past year. In other words, if the beat and raise trend continues, effective forward earnings multiples will be even cheaper. This is what cruising enthusiasts would call smooth sailing.