2 High Dividend Stocks Making Huge Buys in August

Real estate investment trusts, or REITs, are one of the most interest rate sensitive groups of stocks in the entire market. This is the main reason why while S&P 500 has returned 46% since the end of 2022, the Vanguard Real Estate ETF (NYSEMKT: VNQ) it has since only managed a total return of 19%.

In simple terms, rising interest rates tend to put downward pressure on REITs. Not only are income-focused stocks less attractive when risk-free instruments like Treasuries and CDs have higher yields, but real estate stocks tend to rely more on borrowed money than most other sectors, and higher interest rates mean more expensive borrowing costs.

That said, the Federal Reserve is expected to finally start cutting interest rates at its September meeting, and the median expectation is for a total of 2.25 percentage points in interest rate cuts between now and now. Next September. This could create a big catalyst for REITs to outperform the market, and there are two in particular that I think are worth buying this month.

A great business with lots of growth potential

Ryman Hospitality Properties (RHP -0.76%) has been one of the best-performing real estate stocks over the past two years as its business has proven extremely resilient in the wake of the COVID-19 pandemic.

Ryman is a REIT that invests in two different types of properties. It owns six large-scale hotels that are designed to host group events such as conferences and conventions. All five Gaylord hotels are owned by Ryman. In addition, Ryman owns a portfolio of entertainment assets, including iconic venues such as the Grand Ole Opry and Ryman Auditorium, as well as the Ole Red restaurant and entertainment chain.

Ryman’s latest quarterly earnings report shows why the stock has done well. Its revenue was the highest ever and rose 21.5% year-over-year. Operating income, average daily room rates and adjusted EBITDA were also at all-time highs for the business. Additionally, the company raised its guidance for full-year performance.

Despite the strong results, Ryman trades for just 12 times full-year FFO estimates — that is, funds from operations, the REIT equivalent of “earnings” — and could be a big winner as the Federal Reserve cuts interest rates. The company has big investment plans to add value to its portfolio, and lower rates could mean better economics for the business, in addition to the upward pressure lower rates generally mean for REITs as investors return to riskier assets.

Check out “The Monthly Dividend Company” before dropping yields

Since the Fed began the current rate hike cycle in 2022, the REITs that have been knocked down the most have the most stable and reliable dividends and Real estate income (A 0.57%) is a perfect example. Since the start of 2022, Realty Income is down 16%, which is 30 percentage points worse than the S&P 500. The stock is currently yielding about 5%.

It is important to note that the business itself is doing very well and the underperformance was mainly due to the rising rate environment. In the second quarter, Realty Income’s adjusted FFO per share increased 6% year-over-year, the company’s portfolio of 15,450 net leased properties is 98.8% leased, and even in a challenging environment, management keep finding ways to put money. to work In addition, Realty Income achieved a rental recovery rate of 105.7% on lease renewals.

Over the long term, Realty Income has been a fantastic investment. Since listing on the NYSE in 1994, the stock has produced an annualized total return of 13.5% (even after the decline of the last two years), meaning that a $10,000 investment 30 years ago would be worth today nearly $447,000. The company has increased its dividend for 107 consecutive quarters. In fact, Realty Income is such a reliable dividend payer that it has a trademark on the phrase “The Monthly Dividend Company.” With the Fed expected to start cutting interest rates very soon, now could be a great time to add this rock-solid REIT to your portfolio.

Short-term catalysts, but long-term high stocks

I own shares in both REITs and intend to for many years to come. While I think the expected rate-declining environment could provide an excellent tailwind to outperform the market over the next few years, these are two well-run REITs with excellent economics and strong growth opportunities that could produce a return strong for years or decades in your portfolio.