After the market correction last year, more and more investors want to add more security to their stock portfolio. There are no guarantees of safety in the stock market, but there are certain stocks that can offer more consistency than others, especially during periods of volatility.
For example, income stocks like Real Estate Investment Trusts (REITs) can be fantastic investments for reliability. Because these particular types of real estate stocks pay 90% of taxable income in the form of dividends, investors can have confidence in their returns. It also adds diversification into new industries.
If you’re looking to diversify and stabilize your portfolio this year, here are three stocks Fool.com contributors think are worth considering.
1. American Tower: A safe bet in a high-demand industry
Liz Brumer-Smith (American Tower): American Tower (GOVERNMENT OFFICE -1.80%) is the second largest REIT by market capitalization and the world’s largest communications infrastructure company. Size isn’t always an indicator of reliability, but in the case of American Tower, which owns more than 225,000 communications assets worldwide, it certainly positions this company as the leader in a high-demand service.
American Tower owns, develops and leases communications equipment such as cell towers and antennas to a variety of communications companies, and this is a critical service in today’s technology-driven society. In addition, the REIT owns a portfolio of data center facilities that help aggregate, store and transmit data for an even larger tenant base, allowing investors to diversify into solutions that directly address today’s high data demands.
Data usage is projected to grow at 20% annually through 2028. Also, operators like American Tower are also benefiting from the continued rollout of 5G technology both domestically and internationally. The REIT has faced short-term headwinds of late due to currency fluctuations and rapidly rising interest rates impacting its borrowing costs. However, the company is still well-positioned to maintain its attractive yield of nearly 3% and 10-year dividend increases.
AMT dividend data by YCharts.
With a payout ratio of 67%, the company is more than capable of sustaining its dividends even in a difficult macroeconomic environment. It has a stable debt ratio of 5.4 times its earnings before interest, taxes, depreciation and amortization (EBITDA) and is actively working to reduce its exposure to adjustable-rate debt to lessen the impact of rising interest rates.
Since American Tower switched to a REIT in 2012, the company has outperformed the broader market S&P500, resulting in a total return of 224%. With its healthy financial position and strategic position as a leading operator in an industry with long-term demand, I believe it is the ideal stock for diversification, income and reliability right now.
2. Hannon Armstrong: A passive income powerhouse making the world a better place
Kristi Waterworth (Hannon Armstrong Sustainable Infrastructure Capital): When push comes to shove, you only want stocks in your portfolio that you can rely on through good times and bad. To me, these are stocks that have not only paid a reliable dividend over the long term, but also have a plan for their future that makes sense in our changing world.
Hannon Armstrong Sustainable Infrastructure Capital (HASI -0.12%) is easily one of my favorite forward-looking stocks on the market. Not only does the infrastructure REIT have an absolutely fantastic mission, which essentially consists of helping to fund a sustainable and green infrastructure for the world, but it is also a leader in this particular space, putting in the hard work of regularly reviewing its business model and to revise if necessary. There is no playbook to go by; The company writes it as it goes.
This commitment to making its business the best it can be, as well as its commitment to the environment, continues to deliver results. For example, total interest income, its primary source of income, increased 26% in 2022 from $106.9 million in 2021 to $134.7 million in 2021. About 48% of the portfolio consists of receivables, only 9% are real estate leases for renewable energy projects.
The $4.3 billion portfolio includes behind-the-meter project finance, grid-connected finance and sustainable infrastructure finance. This comes from a range of project types and project sources, including solar and wind energy, green real estate, public sector projects, and community and residential projects. It expects to close at least $750 million in additional funding from its current pipeline in 2023.
Those long-term projects and plans make a great base for any investor looking for a reliable stock, but the other part of the equation is a reliable dividend, which Hannon Armstrong also offers. In the 10 years that it has paid a quarterly dividend, it has never been forced to reduce dividend payments to investors. In fact, the company increased its quarterly dividend for the first quarter of 2023 to $0.395 from $0.375 in the fourth quarter of 2022. As of market close on March 14, the dividend yield is a whopping 5.41%.
Hannon Armstrong Sustainable Infrastructure Capital is a company focused on the future of energy as well as other sustainable practices vital to humanity. The capital it provides really makes a difference in the world, and it pays a reliable dividend that doesn’t need to be slacked off.
3. Agree Realty: Healthy payouts from a broad portfolio
Markus report (property agree): Owning shares of Agree real estate (ADC 0.18%) could be just as reliable as relying on the nearby supermarket to deliver the goods. In fact, this REIT could very well own it. That’s because grocery stores make up about 9% of rent from the 1,839 properties Agree currently owns across the country, and Kroger is the seventh largest tenant with 2.9% of the rent.
https://filecache.investorroom.com/mr5ir_agreerealty/379/ADC%20Investor%20Presentation%20-%20January%20vF.pdf
Agree is a retail REIT with a long, diversified list of tenants, about 65% of which are investment-grade companies. Walmart is the largest at 6.9% of rent, and Agree operates in almost every state, which also increases geographic diversity.
This suburban Detroit company was already a savvy shopping center developer when it went public in 1994 and has since returned 12.5% annually, doubling that of the S&P 500.
ADC Total Return Level data from YCharts.
Agree is also a reliable passive income provider, growing its dividend at an average annual rate of 6.1% over the past decade, including four payout bursts since Agree began paying monthly dividends in January 2021.
Agree has been good for investors and the market has been good to agree even in these difficult times. Shares sell for about $70, up about 8% from this point last year, and offer a nice yield of about 4.1%. Analysts, meanwhile, give it a consensus target of $78.23 and see even more upside for this proven, reliable dividend stock.
