Income Investing

[Blackmagic71]

What dividend stocks look good right now, especially from a value perspective?

Realty Income Corp (symbol: O) has been down the last couple of years, but they’ve consistently paid monthly dividends totaling about 6% a year for decades. They’ve got challenges like any other company, but they’re certainly consistent over time. Right now I’ve got 200 shares in my portfolio, but I don’t plan to add more in the future - I wouldn’t want too many eggs in one basket.

Here is there investor presentation:

https://www.realtyincome.com/sites/realty-income/files/2024-05/investor-presentation-q1-2024-v2.pdf

[tyronejk]

I'm not well-informed when it comes to dividend stocks and have some logic/knowledge gaps I'm hoping someone can help fill.

How is dividend priced into stock price? E.g.

1. If a company provides 6%/year dividends one year but stops paying out dividends the next year, would you expect the stock price to fall by ~6%? To me, this seems like you'd be placing a lot of risk at the hands of company leadership with the ability to change dividends on short notice.
2. If a company provides 6%/year dividends but has a totally flat stock price, would you still choose this stock over one that provides no dividend but increases in price by 6%/year?

[Blackmagic71]

How is dividend priced into stock price? E.g.

1. If a company provides 6%/year dividends one year but stops paying out dividends the next year, would you expect the stock price to fall by ~6%? To me, this seems like you'd be placing a lot of risk at the hands of company leadership with the ability to change dividends on short notice.
2. If a company provides 6%/year dividends but has a totally flat stock price, would you still choose this stock over one that provides no dividend but increases in price by 6%/year?

I’m an amateur at this, but I’ll take a shot at answering.

Dividend paying stocks are priced like any other stock, aka - what people are willing to pay for them. A good way to judge their value is by looking at the P/E ratio, with a lower ratio generally being better. Admittedly Realty Income Corp has a pretty high ratio.

A cut to the dividend payment is certainly a risk. If a company like Realty Income Corp that has been known for consistent monthly dividends for decades that increase each quarter suddenly cut their dividend to 3% my guess is it would signal some serious issues with the company and share price would probably drop much more than 3%.

You could reduce some of the risk by spreading your investments out amongst a variety of different companies in a variety of different industries so no single company or industry is too large of a percentage of your portfolio. If you put everything in a single company and something happens (think Enron), then you could be pretty screwed.

As far as the stock remaining flat goes: if we’re using my 200 shares of realty income corp as an example - I’m not too worried about it. It would be great if the value shot up 10% a year or something, but I’m fairly happy soaking up a 6% dividend. Plus chances are over the long run it will go up.

If you look at it over a fairly short time frame, it doesn’t look great, but if you look at it over the long term it’s made some people ALOT of money.

I should also say: IMO when it comes to dividends, if it looks too good to be true it probably is. If some new energy company is offering a 15% dividend or something crazy they probably aren’t going to sustain it. I stick with well established, healthy companies, with a consistent history of paying dividends.