Value is in the eye of the beholder, a statement that is particularly true when it comes to investing. In fact, Wall Street has a very bad habit of paying too much attention to short-term events and missing out on the big picture. That gives investors who can think in decades, and not days, an edge in finding attractively priced investments.
If that sounds like something you can do, you might want to look at Toronto-Dominion Bank(NYSE: TD), T. Rowe Price(NASDAQ: TROW), and W.P. Carey(NYSE: WPC) in December.
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A big mistake and a lingering problem
Toronto-Dominion Bank, usually just called TD Bank, messed up. The bank's internal controls failed to catch the fact that its U.S. arm was being used to launder money. Regulators were not happy when they found out, and neither were investors. On the regulatory front, TD Bank has had to pay a big fine. It has to spend the money needed to upgrade its internal controls, and it's under an asset cap in the U.S. market (more on this in a second).
On the investor side, the stock has lost roughly a third of its value since 2022. But that has pushed the dividend yield up to a historically high 5.2%.
The big concern seems to be the asset cap, which will limit TD Bank's ability to grow in the U.S. market until it has regained the trust of regulators. That is bad, but TD Bank's Canadian business is unaffected, so it still has a very solid foundation. It also has the financial wherewithal to handle the hit from this unfortunate situation.
Given enough time, TD Bank is highly likely to regain regulator trust and start to grow again. It may take a few years, but you get to collect that lofty dividend yield while you wait. There's likely to be some bad earnings news to come in 2025 as TD Bank adjusts to the asset cap in the U.S. market, but that's really just a sign that this financial giant is muddling through the headwinds it's facing.
Mutual funds aren't what they used to be
Asset manager T. Rowe Price is one of the largest sponsors of mutual funds. That's good and bad at the same time. On the good side of the ledger, investors don't like to move money from company to company, so assets tend to be fairly sticky over time. On the bad side of the ledger, exchange-traded funds (ETFs) are displacing mutual funds as the primary tool of small and large investors alike.
The big outcome for T. Rowe Price has been a slow but steady downward pressure on assets under management (AUM). That's a big issue, since the company's top and bottom lines are driven by the management fees it charges on the assets it oversees (which is AUM).
The thing is, T. Rowe Price isn't sitting around with its head in the sand. It's been working to build up its own ETF business, and it's been expanding into other areas where demand is still strong, such as alternative investments. It has plenty of leeway to adjust, too, given that the company has no long-term debt on its balance sheet. This financial strength also gives it the ability to support its hefty, and historically high, 4% dividend yield.
Note that, despite the often large swings in the business thanks to the large swings in AUM that bull and bear markets cause, T. Rowe Price has increased its dividend annually for 38 consecutive years. It seems like this resilient financial industry giant is likely to figure out how to survive to pay many more dividends in the years ahead, given its past history on the dividend front.
A dividend cutter that's worth buying
Most income investors look down on companies that cut their dividends, as is probably appropriate. But not all cuts are the same, and W.P. Carey's dividend cut at the start of 2024 was really more of a reset. In fact, the dividend got right back on the regular dividend increase path it was on before the cut happened the very next quarter.
What really happened was that W.P. Carey decided to exit the office sector all in one shot, instead of continuing to invest in a deeply troubled property sector. It was a decision meant to strengthen the real estate investment trust (REIT) over the long term, even though it resulted in taking some lumps in the short term.
The office exit, however, has left W.P. Carey with cash to invest in new, more desirable, assets. So growth is likely to pick up in the future, since it takes more time to buy assets than to sell them.
If you can think long term, W.P. Carey's dividend reset could be an opportunity. That's largely driven by the fact that it is offering a very attractive dividend yield of 6.2%, which is at least two percentage points higher than the average REIT's. That yield comes from one of the most diversified REITs you can buy, with assets across the warehouse, industrial, and retail sectors and in the North American and European markets.
There's a reason why W.P. Carey is unloved right now, but the business is really getting better, not worse. If you can see through the dividend cut and recognize that it was really a reset, you might want to buy this high-yield REIT today.
Short-term problems can be big long-term opportunities
The theme across TD Bank, T. Rowe Price, and W.P. Carey is that each one is dealing with some sort of business headwind. That's why Wall Street has put them all in the discount bin, as indicated by their relatively or historically high dividend yields.
To be fair, these companies will need to muddle through some near-term issues, but given enough time they all seem highly likely to do just that. If you can think long-term while Wall Street is focused on the near term, you might want to buy one, or more, of these high-yield and attractively priced stocks in December.
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Reuben Gregg Brewer has positions in Toronto-Dominion Bank and W.P. Carey. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
