We recently compiled a list of the 10 Best Dividend Aristocrats with Over 3% Yield. In this article, we are going to take a look at where Realty Income Corporation (NYSE:O) stands against the other dividend stocks with over 3% yield.
When it comes to investing in stocks, high-growth companies often steal the spotlight. However, during uncertain times, dividend stocks—companies that regularly pay out quarterly dividends to shareholders—can serve as safe havens, helping to build wealth regardless of market conditions. Historically, dividends have played a significant role in stock market gains. Since 1930, dividends have contributed about 40% of the S&P 500’s total returns. When it comes to dividend stocks, companies that consistently increase their dividends hold special importance for investors. These companies provide shareholders with a steadily growing income.
One popular dividend strategy to invest in dividend growth stocks is dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years. Though the dividend aristocrats index is lagging this year, delivering a little over 5% return year-to-date, it has performed well in the long run, especially during market downturns. Phillip Brzenk, S&P’s global head of multi-asset indexes, studied the performance of dividend growth strategies, focusing on times when the market performed negatively. He discovered that since the end of 1989, there have been six years when the broader market experienced negative returns. In each of those years, the Dividend Aristocrats index outperformed the benchmark by an average of 13.28%. Notably, the Dividend Aristocrats even achieved a positive total return in three of those years.
Given the strong returns of dividend growth stocks, numerous companies are keen to enhance their dividends. In the second quarter of 2024, there were 539 dividend increases, a 17.2% rise from the 460 increases in the same quarter of 2023. The total dividend hikes amounted to $20.4 billion for the quarter, significantly up from $9.8 billion in Q2 2023, according to a report by S&P Dow Jones Indices. These dividend increases aren’t just a quick fix to attract investors; it’s supported by strong corporate balance sheets and increased cash flows. According to Janus Henderson, corporate cash flow remained solid across most sectors in 2023, providing ample resources for dividends and share buybacks. Consequently, global dividend growth increased by 5% for the year, following the long-term trend. The firm also gave an optimistic outlook for dividends in 2024, predicting $1.72 trillion in dividends for the year, marking a 3.9% increase on a headline basis, equivalent to a 5% growth rate.
Dividend aristocrat stocks are renowned for their growing income, but that doesn’t mean they lack solid yields. Many dividend aristocrats provide above-average yields along with decades of consistent dividend growth. This combination is particularly advantageous for income investors, as it offers the best of both worlds: robust yields and steady growth. Let’s now take a look at some of the best dividend aristocrat stocks with over 3% yield.
Our Methodology:
For this list, we looked at a group of 67 dividend aristocrat companies, which are known for raising dividends for 25 years or more. From this list, we chose 10 stocks with dividend yields above 3%, as of July 17, and arranged them in order from lowest to highest yield. We’ve also mentioned the hedge fund sentiment for each stock, which was sourced from Insider Monkey’s database of 920 funds as of Q1 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A modern city skyline with a REIT retail building at the center to symbolize the company’s reach.
Realty Income Corporation (NYSE:O)
Dividend Yield as of July 17: 5.52%
Realty Income Corporation (NYSE:O) is a California-based real estate investment trust company that invests in single-tenant commercial properties in the US. Though the stock has dipped by almost 1% since the start of 2024, interest rates are likely to decrease in the upcoming months. So, the company is well-positioned to benefit from this new normal.
The stability of Realty Income Corporation’s (NYSE:O) high-quality portfolio continues to support its balance sheet. In the first quarter of 2024, the company maintained a steady occupancy rate of 98.6%. It achieved a rent capture rate of 104.3% on re-leased properties and saw a same-store rental revenue growth of 0.8%. The company’s portfolio, consisting of single-tenant, net-leased properties, mainly reduces its financial burden. Tenants include high-profile, stable businesses such as Wynn Resorts, Dollar General, and FedEx, ensuring a reliable revenue stream. In addition, the company has over 15,000 commercial properties across 89 industries. Its resilience during recessions is evident, as its largest sectors include supermarkets and convenience stores, which perform well in all economic conditions.
Realty Income Corporation (NYSE:O) is a reliable option from a dividend point because being a REIT, the company is expected to pay 90% of its net income to shareholders in dividends in order to avoid paying income tax on its operational profits. On July 9, the company declared a monthly dividend of $0.263 per share, which was in line with its previous dividend. It has raised its payouts every year since its listing on the NYSE in 1994, which makes O one of the best dividend aristocrat stocks on our list. As of July 17, the stock has a dividend yield of 5.52%.
According to Insider Monkey’s database of Q1 2024, 25 hedge funds held stakes in Realty Income Corporation (NYSE:O), compared with 27 in the previous quarter. These stakes are worth over $250.5 million in total. With over 1.4 million shares, AEW Capital Management was the company’s leading stakeholder in Q1.
Overall O ranks 2nd on our list of the best dividend aristocrats to buy. You can visit 10 Best Dividend Aristocrats with Over 3% Yield to see the other dividend aristocrats that are on hedge funds’ radar. While we acknowledge the potential of O as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than O but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.