We recently published a list of 10 Best Dividend Stocks Under $5. In this article, we are going to take a look at where Diversified Healthcare Trust (NASDAQ:DHC) stands against the other dividend stocks under $5.
Dividends have consistently been a strong source of returns over time. These stocks hold both theoretical and practical significance in assessing stock values. Although dividend stocks have underperformed the broader market in recent years, their long-term performance remains steady.
Since the beginning of 2024, the Dividend Aristocrats Index—which monitors companies that have consistently raised their dividends for at least 25 consecutive years—has yielded returns of over 8% for investors. However, this performance has fallen short compared to the broader market, which has surged by nearly 19% during the same period. Despite this shortfall, 2024 has been a favorable year for dividends overall. This improvement is largely attributable to several major technology firms, previously known for not paying dividends, announcing the start of their dividend programs. Moreover, these companies have collectively distributed billions in their inaugural dividend payments.
The long-term performance of dividend stocks also takes into account periods of high interest rates, during which other asset classes typically experience declines. This doesn’t imply that dividend stocks only perform well during episodes of high interest rates. While there isn’t a clear connection between their performance and interest rates, historical data shows that they tend to remain relatively stable regardless of the rate environment. For instance, in certain periods of rising US interest rates, such as the mid-1970s, dividend-paying stocks outperformed the broader market. Conversely, as rates decreased from the mid-1980s to the mid-1990s, the performance of high-yield stocks relative to the market remained relatively stable. Even if we set aside historical data and concentrate on more recent performance, we find that elevated interest rates did not have any serious impact on the performance of dividend equities. For example, in 2022, when the Federal Reserve raised its federal funds rate seven times to tackle persistent inflation—four of which were consecutive hikes of 75 basis points—dividend stocks outperformed the broader market. This could be due to the fact that dividend-paying companies tend to be well-established and more stable, with enough confidence in their cash flows to commit to returning cash to shareholders. Moreover, committing to a dividend imposes financial discipline. Instead of using excess cash for acquisitions that may or may not create value, repurchasing shares at uncertain prices, or funding speculative growth initiatives, executives are compelled to manage payouts responsibly.
Given investors’ growing interest in dividend stocks, more companies are initiating and increasing their dividend payments. A key driver behind this trend is that many companies, particularly large tech firms, have substantial cash reserves and are rapidly boosting their free cash flows. This strong financial footing allows them to reward investors with higher dividends. According to the latest report from S&P Dow Jones Indices, companies in the index paid $153.4 billion in dividends during the second quarter of 2024, up from $151.6 billion in the previous quarter and $143.2 billion in the same period last year. The report also highlighted that there were 539 dividend increases reported, compared to 460 in the same period last year, marking a 17.2% year-over-year growth. The total amount of these increases reached $20.4 billion for the quarter, up significantly from $9.8 billion in Q2 2023. With that, we will take a look at some of the best dividend stocks under $5.
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Is Diversified Healthcare Trust (DHC) The Best Dividend Stock Under $5?
A seasoned real estate professional inspecting a property with the company’s branding in the background.
An American real estate investment trust company, Diversified Healthcare Trust (NASDAQ:DHC) ranks second on our list of the best dividend stocks under $5. The company owns around $7.2 billion worth of premium healthcare properties across 36 states and Washington, D.C. It aims for diversification throughout the healthcare services sector, including various care delivery methods, research disciplines, and types of properties and locations. In the past 12 months, the stock has surged by over 30%.
In the second quarter of 2024, Diversified Healthcare Trust (NASDAQ:DHC) reported revenue of roughly $372 million, which showed a 7.5% growth from the same period last year. The company also surpassed expectations for normalized FFO due to revenue growth and effective expense management. This performance was bolstered by a 27% year-over-year increase in same-property NOI for SHOP, along with gains in occupancy and rent. In the Medical Office and Life Science Portfolio, the company achieved a 12% rise in weighted average rental rates on over 100,000 square feet of leased space, marking its fourth consecutive quarter of double-digit rent growth. With ongoing favorable trends in the SHOP industry, Diversified Healthcare Trust (NASDAQ:DHC) is well-positioned to meet its goals for the rest of the year, focusing on achieving its SHOP NOI growth target for 2024 and enhancing its capital and liquidity profile.
Though Diversified Healthcare Trust (NASDAQ:DHC) does not hold any dividend growth streak, the company has been paying regular dividends to shareholders for over two decades. It currently pays a quarterly dividend of $0.01 per share and has a dividend yield of 1.12%, as of August 23.
According to Insider Monkey’s database of Q2 2024, 24 hedge funds held stakes in Diversified Healthcare Trust (NASDAQ:DHC), compared with 27 in the previous quarter. These stakes have a total value of nearly $140 million.
Overall DHC ranks 2nd on our list of the best dividend stocks under $5. While we acknowledge the potential for DHC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
