Stocks nosedived this week after the Federal Reserve reset its interest rate expectations for 2025. The Federal Reserve is now forecasting only two quarter-point rate reductions next year, a more modest pace than the market had hoped. That put downward pressure on more rate-sensitive stocks, like real estate investment trusts (REITs) and others that pay a higher-yielding dividend.
The rate-cut decision is bad news for anyone seeking to buy a home or having a high mortgage rate they want to refinance. However, it's great news for those seeking to boost their passive income by scooping up some higher-yielding dividend stocks at lower prices. Three stocks that are having a Fed-inspired holiday sale are Realty Income(NYSE: O), Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP), and Vici Properties(NYSE: VICI).
High-quality real estate
Realty Income's stock has dipped about 5% over the past week or so and has now fallen almost 20% below its high for the year. That slump has pushed the diversified REIT's dividend yield above 6%, much higher than the S&P 500's 1.2% yield.
The REIT's high-yielding payout is on an extremely firm foundation. Realty Income generates very stable rental income backed by a high-quality portfolio ofnet lease retail, industrial, and gaming real estate. Those leases require that tenants cover all operating costs, including building insurance, routine maintenance, and real estate taxes. The company pays out about 75% of its steady cash flow in dividends, retaining the rest to help fund new property investments. Realty Income also has one of the strongest balance sheets in the REIT sector.
Realty Income has a very consistent growth record. It has delivered 30 consecutive years of dividend growth and only one year of declining funds from operations (FFO). Given its strong financial flexibility and newly launched private investment fund, it's in an excellent position to continue growing in 2025. When added to the dividend income, that growth -- which should continue averaging around 5% per year -- should enable the REIT to produce double-digit total annual returns from here.
Supercharged total return potential
Shares of Brookfield Infrastructure have slumped about 10% over the past week and now sit at around 17.5% below their high for the year. That sell-off has pushed its dividend yield up to 4.4%.
Brookfield also has a well-supported dividend payment. About 85% of the global infrastructure operator's FFO comes from contracted or regulated assets, with the same percentage protected from or indexed to inflation. Meanwhile, it aims to pay out 60% to 70% of its stable cash flow in dividends. The company also has a strong investment-grade balance sheet.
The infrastructure operator is growing briskly. It expects to deliver 10%+ FFO per share growth this year, powered by strong organic growth drivers and its accretive capital recycling strategy. Brookfield expects those catalysts to continue driving double-digit FFO per share growth in the coming years. It currently has a record organic capital project backlog of $8 billion, with another $4 billion of projects under development.
Meanwhile, its investment pipeline is as big as it has been in two years and continues to grow. The company should have no problem delivering on its plan to increase its dividend by 5% to 9% annually over the long term (extending its 15-year streak of dividend growth, which covers every year since its formation). With its earnings growing at a double-digit rate and its dividend yield over 4%, Brookfield could generate total annual returns in the mid-teens from here.
Ample embedded growth
Vici Properties stock has tumbled about 8% over the last week and now sits more than 15% below its high point for the year. That slump has driven the REIT's dividend yield up over 6%.
The experiential real estate owner increased its dividend payment by 4.2% in September. It has raised its dividend in all seven years since its formation. The REIT has grown its payout at a 7% compound annual rate during that period, well above the average of other REITs focused on triple net lease (NNN) real estate (3.2%).
Vici Properties has ample financial flexibility to continue growing its portfolio and dividend. It has a reasonable dividend payout ratio (75% of its FFO) and an investment-grade balance sheet.
Meanwhile, it has lots of growth opportunities ahead. It partners with operators of experiences, which opens the door to a steady stream of investment opportunities. It has the right of first refusal or the option to buy several properties owned by its current partners. It also has long-term financing partnerships with others.
The gift that will keep on giving in 2025
The Federal Reserve provided income investors with a gift this holiday season in the form of lower prices for some top-quality dividend stocks. That enables investors to lock in higher dividend yields, setting them up to generate more income in 2025 and beyond. Add in their growth potential, and these stocks look like bargain buys this holiday season.
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Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Realty Income, and Vici Properties. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Brookfield Infrastructure Partners and Vici Properties. The Motley Fool has a disclosure policy.
