By the time the stock market next opens, April will be here. With that month comes the standard April 15 filing deadline for U.S. income taxes. As of March 15 -- one month before the deadline -- the average taxpayer getting a refund will see a decent $3,109 payment headed their way. Although in most cases, a refund simply represents a repayment of previously overpaid taxes, it still feels nice to get that cash back.
Of course, one of the only things better than getting a windfall of cash is successfully investing that cash in ways to potentially provide solid long-term returns. With that in mind, three Motley Fool contributors went looking for companies worthy of consideration as a place to invest that refund check. They picked Realty Income (NYSE: O), Visa(NYSE: V), and Enbridge (NYSE: ENB). Read on to find out why and decide for yourself whether one or more of them may be worth investing your tax refund in.
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Why wait another year when you can get paid every month?
Jason Hall(Realty Income): Getting a tax return is nice, but just remember, you're essentially giving the government an interest-free loan. A better idea is to take that return and buy shares of a high-quality, high-yield investment in one of the best real estate businesses you can own: Realty Income.
Realty Income owns and invests in stand-alone commercial real estate such as restaurants, gyms, pharmacies, discount warehouse stores, and other e-commerce-resistant experiential businesses. Its customers are responsible for maintenance and taxes, while Realty Income takes on the capital expense of the land and building.
This strategy has worked incredibly well for many years. Realty Income has increased its dividend, not just every year, but every quarter since 1994, while paying shareholders every single month. With a dividend yield near 5.75% at recent prices and a long record of payout growth, now's a great time to turn your tax return into a regular source of income.
Take a rare chance to buy this card giant at a discount
Eric Volkman (Visa): This week, shares of credit card companies took some hits because of a legal settlement. Visa and its longtime rival Mastercard agreed to shave a few basis points off their interchange, or "swipe" fees. These are the charges they impose on merchants using their networks to process payments, and are shared between the credit card giants and the issuers of their plastic (chiefly banks).
Investors sold out of the two stocks. To a degree that's understandable; after all, when a company reduces its fees, its revenue tends to sag. But let's pick this one apart a little.
The pack of swipe fees tends to hover around 2.3% of the purchase amount, according to data from The Nilson Report cited by The New York Times. In the settlement, Visa and Mastercard agreed to cut all fees by a light 0.04 percentage points for three years and hold the average rate at least 0.07 percentage points below the current level across five years.
The settlement -- an important development in a long-simmering lawsuit -- requires approval from a federal judge in New York City. It's also sure to be subject to numerous appeals and objections from merchants who don't feel it goes far enough.
So right off the bat, this isn't going to affect Visa immediately. Even if and when it does, those relatively modest cuts aren't going to greatly reduce the torrent of revenue the company earns. Paying with plastic is normal and habitual in the modern world. Even locales where cash transactions still have a grip are enthusiastically adopting more convenient means of commerce.
It's telling that so far, few analysts have made downward revisions to their estimates for Visa. In fact, they still expect this big "War on Cash" winner to continue posting hot growth. On average, they're expecting per-share net income to increase by 12% this year and by 13% in 2025. Revenue should see a sharper rise, advancing by 20% in this frame before settling down to 10% next year.
It continues to invest in critical infrastructure
Chuck Saletta (Enbridge): Earlier this month, Canadian energy infrastructure titan Enbridge completed its acquisition of the East Ohio Gas Company from Dominion Energy. This is another purchase of a natural gas utility by Enbridge, cementing its position as North America's largest natural gas utility company.
While natural gas may not be the most politically popular energy source at the moment, it is expected to remain a strong part of the North American energy mix for decades to come. By buying up so much last-mile delivery and utility infrastructure, Enbridge is making it clear that it believes that natural gas truly has a long-term future in North America.
Enbridge's expansion also provides a decent reason to believe that it will be able to continue boosting its dividend over time. Including its 2024 increase, Enbridge can boast 29 consecutive years of dividend raises, at least in terms of the company's home currency, Canadian dollars. (U.S. investors will likely see fluctuations based on exchange rate changes.)
Today's Enbridge investors get a yield of around 7.5%, which is pretty high for a company with such a strong history of regular increases. That dividend consumes just over half of the company's operating cash flow, providing a great reason to believe that its trend can continue, especially as the business keeps investing in its expansion. Do note that U.S. investors will face a Canadian withholding tax on that dividend, unless they hold Enbridge's shares in a qualified retirement account.
Put it all together, and Enbridge looks like it offers investors a great combination of current income and potential income growth over time. That makes it worthy of consideration for folks looking for a place to invest their tax refund windfall.
Get started now
Of course, a refund check only adds long-term value if you're able to invest it before the temptation to spend it gets too strong. So make a commitment to yourself to put your tax refund to good use, and consider whether one or more of these three businesses may be worth a bit of your newfound capital.
Should you invest $1,000 in Realty Income right now?
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Chuck Saletta has positions in Enbridge and has the following options: long January 2025 $37.50 calls on Enbridge, short January 2025 $30 puts on Enbridge, short January 2025 $37.50 puts on Enbridge, and short January 2025 $40 calls on Enbridge. Eric Volkman has no position in any of the stocks mentioned. Jason Hall has positions in Mastercard, Realty Income, and Visa. The Motley Fool has positions in and recommends Enbridge, Mastercard, Realty Income, and Visa. The Motley Fool recommends Dominion Energy and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
