2 Overcharged Dividend Stocks to Buy If There’s a Stock Market Selloff

Stock trading is no fun if you are already fully invested. However, they are opportunities for those with money to spend. That’s why I always try to keep a few cash on the side — so I’m ready to cash in when Wall Street crashes.

I keep it too a watchlist of stocks I know I’d like to buy if they ever drop to more attractive levels and Real estate income (NYSE: O) and WP Carey (NYSE: WPC) are currently at the top of that list. These real estate investment trusts (REITs) already offers supercharged dividend yields. However, they probably will become even more attractive over time Next market decline.

A model of consistency

Realty Income’s dividend yield at the current share price is over 5%. It is several times larger than S&P 500his the average dividend yield, which is now below 1.4%. This monthly dividend payer has a great track record of growing its payouts: It recently delivered its 108th consecutive quarter growth and the 127th boost since publication in 1994.

The diversified REIT holds a portfolio of retail (74.4% of its rent), industrial (14.5%), gaming (3.3%) and other (2.8%) properties, which rents them in the base triple net leasing agreements with high-quality tenants in sustainable industries. This lease structure makes tenants responsible for all operating expenses of a property, including routine maintenance, building insurance and property taxes.

Meanwhile, Realty Income’s regular tenants are in businesses that are resilient to both the impact of recessions and e-commerce competition, such as grocery chains, department stores and pharmacies. These features provide real estate income with stable rental income.

The REIT pays out about three-quarters of its stable cash flow to investors through dividends. This gives it a large cushion while allowing it to retain a significant amount of cash with which it can expand its portfolio of income-generating properties.

Realty Income believes it can grow its adjusted funds from operations (FFO) by about 4% to 5% annually. This should support continued growth in its high-yielding dividend.

Back to growth after a reset

WP Carey has many similarities to Realty Income. It is also a diversified REIT that enters into triple net leases with its tenants. However, it focuses more on industrial and warehouse properties (64% of its rent), with the balance coming from retail (21%) and other properties (15%). WP Carey also has a portfolio of operational self-storage facilities.

The company focuses on owning operationally critical commercial real estate. Because these properties are especially vital to their tenants, they tend to pay rent on time and renew their leases at market rates. WP Carey’s leases typically have built-in rent escalators that either increase rents at a fixed rate or one linked to inflation. Its rents rose at an annualized rate of 2.9% in the second quarter, much faster than THE annual rent growth rate of about 1%. Realty Income expects this year.

The story continues

WP Carey aims to pay less than three-quarters of its steadily growing rental income through dividends. At the current share price, its payout yield is around 5.5%. The REIT aims to grow its dividend at about the same rate as adjusted FFO. Although it cut its dividend by nearly 20% late last year following its strategic decision to exit the office sector, it has already doubled its payout in 2024 (albeit by small amounts). The REIT is using the cash flow it retains and its strong financial profile to expand its portfolio, which should increase its rental and dividend income.

Supercharged income streams

Estate Income and WP Carey already offers high dividend yields supported by high-quality real estate portfolios that produce stable rental income. These payments should increase steadily in the future as REITs expand their sustainable portfolios.

However, their stock prices will likely fall during the market selloff. That’s what makes a recession a good one time to lock in an even higher dividend yield. So if you haven’t already done so, now would be a great time to start building a cash reserve. You can then add these dividend stocks to your watchlist so that you can supercharge your return potential by picking up shares after the next sale.

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Matt DiLallo has positions in Realty Income and WP Carey. The Motley Fool has positions and recommends Realty Income. The Motley Fool has a disclosure policy.

2 Supercharged Dividend Stocks to Buy If There’s a Stock Market Selloff was originally published by The Motley Fool