3 Dividend Stocks That Hold Buys in October

The US Federal Reserve finally cut its benchmark interest rate by half a percentage point in mid-September. This marked its first interest rate cut in more than four years and indicated that it had made some progress towards reducing inflation.

That long-awaited interest rate cut should also shine a spotlight on dividend stocks, which have previously lost their luster as income-focused investors turned to CDs and Treasuries to earn comparable or higher returns with much less risk. So as interest rates fall, these investors should once again turn to dividend stocks. If you want to take advantage of this rotation, you should consider buying Real estate income (A -0.62%), AT&T (T -0.64%)and Opera Limited (OPRA 0.79%).

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1. Real estate income

Realty Income is one of the largest real estate investment trusts (REITs) in the world. REITs buy lots of properties, rent them out, and are required to pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.

Rising interest rates have made REITs less attractive, making it more expensive to buy new properties. They also generated headwinds for their tenants as their income-oriented investors turned to fixed-income investments.

But as interest rates fall, those headwinds will dissipate and Realty will become very attractive to yield-hungry investors. It pays a forward yield of 5%, pays its dividends monthly and has increased its payout 127 times since its IPO in 1994.

The company owns 15,450 properties in the US, UK and Europe and leases them to recession-proof tenants in 90 industries. Some of its tenants such as The dollar tree (NASDAQ: DLTR)has struggled with store closings in recent years — but has still maintained a high occupancy rate of more than 96 percent over the past three decades.

REITs measure their profit growth by their funds from operations (FFO) instead of their earnings per share (EPS). Realty’s adjusted FFO (AFFO) grew at a compound annual growth rate (CAGR) of 6% from 2020 to 2023, and its stock still looks cheap at 16 times last year’s AFFO.

2. AT&T

Over the past three years, AT&T has abandoned its ill-fated attempt to become a media giant by spinning off DirecTV, Time Warner and its other smaller media assets. By divesting these businesses, AT&T streamlined its operations and raised more cash to pay down debt and expand its 5G and fiber businesses with higher growth.

As part of this new turnaround strategy, AT&T has gained 2.9 million postpaid wireless subscribers in 2022 and another 1.7 million postpaid subscribers in 2023. Its fiber business has gained 1.2 million net subscribers in 2022 and 1.1 million net subscribers in 2023, and this expansion has largely offset the secular decline. of its wire business division.

AT&T’s revenue grew just 1% in 2023, but its free cash flow (FCF) rose 19% to $16.8 billion and easily covered its $8.1 billion dividend. So it still has plenty of cash to cover its 5% forward yield for the foreseeable future.

For 2024, analysts expect AT&T’s revenue to remain flat as adjusted EPS grows just 3%. However, FCF is expected to increase to $17-18 billion for the year as it continues to cut expenses. Its shares still look very cheap at 10 times forward earnings, and its high dividend yield could attract many more investors as interest rates gradually fall.

3. Opera Limited

Opera’s namesake web browser only controls about 2% of the market, but it still served 298 million monthly active users (MAUs) across its news app and web, mobile and gaming browsers at the end of the second quarter of the year 2024. Opera user base. shrinks in the shadow of larger browsers such as Alfabitis google chrome, Apple safari, Microsoft Edge and Mozilla Firefox, but is offsetting this pressure by rolling out new AI tools and integrated ads to increase its revenue per MAU.

That’s why analysts expect its revenue to grow 17% in 2024 and 15% in 2025. Adjusted earnings are expected to fall 53% this year as it ramps up investment in new AI features, but expects 23% growth in 2025 as it cuts those expenses. Based on these expectations, Opera shares look very cheap at 13 times next year’s earnings.

Opera initiated a semi-annual dividend last year, currently pays a high forward dividend yield of 5.4% and can easily cover those payments with a sustainable payout ratio of 46%. The low valuation and high yield could make Opera — which is often overlooked by both value and growth investors — a very attractive investment as interest rates fall.