2 stocks to buy with dividends yielding more than 3%

If you like high-yield dividends, you’re in luck this year. With stock prices falling, dividend yields are on the rise. This allows income-oriented investors to secure even more attractive income streams.

Two high-quality dividend stocks that have taken a beating this year are AvalonBay Communities (NYSE: AVB) and Brookfield Infrastructure (NYSE: BIPC)(NYSE: BEEP). Shares of both companies fell more than 20%. It pushed their dividend yields greater than 3%, double the dividend yield on a S&P500 index fund. This makes them even more attractive to yield-oriented investors.

1. AvalonBay: A Real Estate Backed Income Stream

AvalonBay Communities’ share price has fallen 20% this year. This means that the apartment-focused real estate investment trust (REITs) the dividend yield increased from 2.5% to 3.3%. This higher return implies that every $1,000 invested in the stock will generate $33 in dividend income over the next year. That’s up from $25 for an investment made at the start of the year.

The Residential REITs the dividend is on rock solid ground. AvalonBay generates very stable rental income supported by a diversified portfolio of apartment buildings across the country. Demand for apartments tends to be very resilient, allowing the REIT to generate stable rental income.

Meanwhile, the REIT has paid out 68% of its cash flow to shareholders in the form of dividends over the past year, allowing it to retain cash to fund its continued expansion. AvalonBay also has a top-notch financial profile, giving it additional flexibility to fund growth and dividends.

Although AvalonBay hasn’t raised its dividend every year — it last gave investors a raise in early 2020 — it has increased its payout at a compound annual rate of 5% since its IPO. The REIT should be able to increase its payments in the future, due to rising rental rates, acquisitions and development projects. All three growth drivers emerged in the first quarter: Rental revenue grew 8.5%, while AvalonBay has 16 new communities under construction and acquired an apartment community in Colorado.

2. Brookfield Infrastructure: Visible Growth Ahead

Brookfield Infrastructure has fallen more than 25% this year. This decline, combined with a 6% increase in the dividend payment, pushed the yield up to 3.4%.

This lucrative revenue stream is also built on solid foundations. Brookfield Infrastructure generates very stable cash flows supported by long-term contracts and government-regulated rates. Meanwhile, the company has a strong investment-grade balance sheet and is retaining 30% to 40% of its cash flow to support its expansion.

Brookfield Infrastructure has four drivers of growth: inflation-linked rate increases, volume growth, expansion projects and acquisitions. He is taking advantage of all four this year. Soaring inflation allows Brookfield to raise rates, while a strong global economy drives higher volumes in its infrastructure assets. In the meantime, several expansion projects are underway to meet the growing global demand for infrastructure.

Finally, the company made several other acquisitions, including the purchase of a regulated utility company, a smart metering company and a telecommunications service provider, all located in Australia.

Brookfield believes its growth engines will give it the fuel to grow its dividend at an annual rate of 5% to 9%. This should continue the company’s streak of increasing the dividend, which reached 13 consecutive years in 2022.

Falling stock prices drive up dividend yields

While this year’s market sell-off was tough, it also offered income-oriented investors the chance to lock in higher dividend yields. AvalonBay and Brookfield Infrastructure are two great opportunities now that their returns are above 3% after their steep declines this year. Both payouts are on rock solid ground and should continue to rise in the future.

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Matthew DiLallo holds positions at AvalonBay Communities, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool recommends AvalonBay Communities, Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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