Investors with a long-term view must avoid the Wall Street voting machine and focus on the value of the business.
Realty Income is down 20% from recent highs, yields 5.5%, and has a 30-year history of annual dividend increases.
PepsiCo’s stock is down 25% from its recent highs and its yield is at an all-time high of 4%, making it a dividend king.
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People often think of Wall Street’s approach to stock pricing as efficient. That’s true in the long term, but in the short term, investors can get very emotional. This sentiment can present a buying opportunity for long-term-focused investors.
Now might be a good time to take a counter-trend buy real estate income(NYSE: O) and Pepsi(NASDAQ:PEP)both appear to be trading at ridiculously low prices. That’s why you might want to swim against the current.
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Realty Income has increased its monthly dividend payments every year for 30 consecutive years. That’s an impressive streak, and highlights the stability of this 5.5%-yielding real estate investment trust (REIT). Dividends increased during the dot-com bubble burst, the Great Recession and the coronavirus pandemic.
The most important thing here is Realty Income’s single-tenant net lease approach. A net lease requires the tenant to pay most of the property’s expenses. While any single property is high risk because there is only one tenant, in a large portfolio the risk is relatively low. This is because real estate income avoids the cost and effort involved in maintaining their property.
Realty Income is the largest net lease REIT with a portfolio of more than 15,500 properties. The vast majority of its assets are retail assets, which account for approximately 80% of its rents. Single-tenant retail properties tend to be very similar, making them easy to buy, sell and sublease.
The remaining 20% ​​of rents come from industrial assets and more unusual properties such as casinos and data centers. This adds to the diversification of the portfolio, with approximately 18% of rentals coming from Europe, further enhancing the diversification of the portfolio. Recently, Realty Income agreed to an acquisition that will allow it to expand into Mexico.
A conservatively run REIT is basically a boring, diversified dividend machine. With the stock trading 20% ​​below its 2022 highs, now is a good time to consider buying the stock. If you’re thinking in terms of decades rather than days, this is too attractive an entry point to ignore. Five hundred dollars will buy you eight shares of Real Estate Income.
PepsiCo’s shares are down more than 25% from their 2023 highs. The 4% dividend yield is near the company’s all-time high. To be fair, the food and beverage maker isn’t firing on all cylinders right now, so investors are simply reacting to its recent financial performance. However, PepsiCo is also an industry leader and dividend king.
PepsiCo’s beverages, snacks and packaged foods business is actually one of the largest consumer staples businesses in the world. It has a strong brand portfolio, distribution capabilities, marketing expertise and innovation skills that rival any competitor. A strong business model that executes well in good times and bad is why it has been able to deliver more than 50 years of annual dividend growth. There is no doubt that this is a very good business. It’s just going through some hard times right now.
This happens to every company. Long-term winners figure out a way to survive better days. PepsiCo is currently working to address this issue. For example, it has been acquiring new brands that resonate well with consumers. It is also working with activist investors to revive the business, which could include tweaking its beverage business model to make it more similar to that of industry leaders Coca Cola.
The problem is that the moves PepsiCo is taking are not short-term solutions, which is what Wall Street really wants to see. PepsiCo is making strategic decisions with a long-term focus. If you think in terms of decades rather than days, that should look wonderful to you. This could be your chance to buy the high-yielding Dividend King, even though it looks ridiculously cheap, with a $500 investment netting you three shares.
Short-term price dislocations, such as those seen by Realty Income and PepsiCo, generally do not last forever. As companies like these two industry leaders once again prove why they are leaders, investors tend to come back and buy stocks. That’s why you need to take the time to get to know them. If you wait too long, you might miss out on the opportunity to buy Realty Income and PepsiCo because they appear to be on sale.
Before buying real estate income stocks, consider the following factors:
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Reuben Gregg Brewer works at PepsiCo and Realty Income. The Motley Fool has an interest in and recommends Realty Income. The Motley Fool has a disclosure policy.
Got $500? Two dirt-cheap stocks long-term investors should buy now originally published by The Motley Fool
