3 Dividend Stocks to Double Up on Right Now
Key Points
Realty Income is a REIT that boasts stable income and a monthly dividend.
Target has been battered by a tough economy, but the retailer should see a recovery.
Credit card powerhouse American Express has begun resonating with younger consumers.
The S&P 500 is rising again, and investors are taking a greater interest in growth stocks. That typically goes together; as investors feel more confident about the market, they're willing to take a greater chance on economic recovery.
However, investors shouldn't forget about dividend stocks. Whether you're already retired or need passive income for a different reason, dividend stocks belong in almost every well-diversified portfolio. Many top dividend stocks have outperformed the market over the past few months as it declined. They offer stability and value, and they cut you a check even when the market is down.
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If you're looking for options in today's market, Realty Income (NYSE: O), Target (NYSE: TGT), and American Express (NYSE: AXP) are three excellent candidates.
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1. The monthly dividend stock
Realty Income is a real estate investment trust (REIT). REITs pay 90% of their earnings as dividends, which is why they generally make great dividend stocks. But there are better and worse ones, and Realty Income is definitely one of the best.
Although it's a retail REIT, and retail makes up 80% of its 15,600 leased properties, it has expanded into other industries as it acquires smaller REITs. That still gives it the protection of serving a stable clientele, but it diversifies its risk. Grocery stores and convenience stores make up more than 20% of its total properties, and its top clients include names like Walmart and Home Depot, but now it also counts industrials and casinos among its property types.
Realty Income is one of a few companies that pay a dividend monthly, and it has an incredible track record of paying it for the past 660 months without missing a beat. It has also raised for 111 quarters consecutively.
Finally, to sweeten everything else, Realty Income's dividend has a high yield that's 5.5% at the current price. That's well above its recent averages. The market is still souring on real estate stocks because of high interest rates, and Realty Income hasn't been spared. There's concern about how much its tenants will spend on building out and how much they can handle in rent increases.
But Realty Income is well-capitalized to withstand short-term challenges, and so far, portfolio occupancy remains at a high 98.5%. If you're interested in a great dividend long-term, it's an auspicious time to buy shares.
2. The Dividend King
Target has been completely crushed over the past few years. The challenges keep changing, but the result is the same: slow growth or even declines.
Today, the retailer is dealing with a pressured macroeconomy where consumers are holding back on discretionary purchases. Unlike some of its large retail competitors, Target's sweet spot is discretionary purchases, like home improvement, not groceries. In its fiscal 2025's first quarter (ended May 3), sales declined 2.8% from last year, with comparable sales (comps) down 3.8%.
However, there were many positives. Operating income and earnings per share (EPS) both increased from last year, and the digital business continues to perform well. Digital comps were up 4.7% from last year, driven by same-day services, which were up 36%. The pressure may continue in the near term, but Target is likely to make a full recovery when conditions improve.
While the company is getting its act together, investors can take comfort in the dividend. Target is a Dividend King, an exclusive status for companies that have paid and raised their dividends for at least 50 years straight. Target is now on year 53. Companies earn this status because their dividend is rock-solid and reliable.
No matter what's happened in the environment, whether a global pandemic, hyperinflation, or other economic event, Target has been committed to the dividend. At the current price, Target's dividend yields 4.3%, more than 3 times the average S&P 500 yield.
3. The Buffett favorite
American Express is celebrating its 150th anniversary, but it's as modern and relevant as ever. It has the same basic model it's had for decades, offering premium credit cards to an affluent clientele, but it has evolved to meet demand from new customers.
It now has a full digital banking platform, offering services for both individuals and small businesses, and it has a large, industry-leading rewards program that boosts engagement and leads shoppers to fork over annual fees for the perks. The banking segment creates huge reserves, and it also balances the other part of its business, since the higher interest rates that could slow spending lead to higher net interest income.
American Express is also resonating with younger shoppers, who are driving growth today and should for decades to come.
The fee-based model means American Express is highly profitable, and it also generates loyalty and higher spending. The company's upscale core clientele is more resilient than the general population, and American Express has been reporting healthy growth despite the challenging spending climate.
American Express is Berkshire Hathaway's second-longest-held position and second-largest position these days. Buffett loves its global brand name, which gives it a moat, and the fact that it pays a growing dividend. Today, the dividend yields only 0.9%, because the stock has been outperforming the market. It's an excellent candidate for a long-term, reliable, dividend-paying value stock.
American Express is an advertising partner of Motley Fool Money. Jennifer Saibil has positions in American Express and Walmart. The Motley Fool has positions in and recommends Berkshire Hathaway, Home Depot, Realty Income, Target, and Walmart. The Motley Fool has a disclosure policy.