We recently compiled a list of the 12 Best High Dividend Stocks Under $100.In this article, we are going to take a look at where Realty Income Corporation (NYSE:O) stands against the other high dividend stocks under $100.
Dividend stocks hold strong appeal for income generation for two main reasons. First, their regular payouts help investors address immediate liquidity needs. Second, historical trends indicate that dividend-paying stocks can help reduce market volatility and limit losses during downturns. Companies with a track record of dividend growth often provide added stability during bearish markets. For instance, between December 31, 1999, and March 31, 2022, during periods of market decline, the High Yield Dividend Aristocrats index outperformed the Composite 1500 and the High Dividend Index, delivering an average monthly outperformance of 140 and 49 basis points, respectively.
Investing in dividend stocks has always been a tug-of-war between those favoring high yields and those backing dividend growth. Analysts suggest that due to economic volatility since 2020 and ongoing market uncertainties impacting corporate earnings, high-yield companies without strong financial stability and discipline may struggle to maintain their dividend payouts. This could leave them at risk of dividend cuts or suspensions. In contrast, dividend growth strategies have proven effective in both rising and falling interest rate environments. According to a report by ProShares, the Dividend Aristocrats index, which tracks companies with at least 25 years of consistent dividend growth, achieved a 14.26% return during the period of declining interest rates from May 2005 to March 2024, outperforming high-yield stocks, which delivered just over 10%. Similarly, during periods of rising interest rates within the same timeframe, dividend growth stocks returned 10.26%, compared to 9.22% for high-yield stocks.
That said, high-yield stocks aren't entirely off the table. While analysts warn investors about the financial stability of high-yield companies, these stocks have historically delivered solid returns. The research from The Wellington study analyzed the broader market’s dividend-paying stocks from 1930 to 2019, dividing them into five categories based on their dividend yields. The top 20% of dividend payers outshone the rest, with the moderate dividend group also surpassing the broader market in several periods. However, stocks with lower dividend yields showed less consistent performance compared to the broader index.
Kirsten Cabacungan, an investment strategist at Merrill and Bank of America Private Bank, encouraged investors to focus on both price appreciation and dividend income when evaluating total returns. She highlighted that dividend-paying stocks bring added advantages, as their steady income can help cushion losses during market downturns, offering stability to a portfolio. Moreover, during periods of low interest rates, these stocks often provide higher income compared to options like Treasury bonds, CDs, or corporate bonds. Here are some other comments from the analyst:
“Companies that have consistently increased their dividends tend to be more stable, higher quality businesses, which historically have weathered downturns and are more likely to have the ability to pay dividends consistently.”
Cabacungan advised that investors looking for steady income might benefit from focusing on stocks with above-average dividend yields held over the long term. On the other hand, those prioritizing growth without the need for immediate income should consider stocks with a history of steadily increasing dividends. This strategy aligns with a growth-focused approach, enabling investors to capitalize on companies that consistently enhance their dividends as their profits and cash flows expand. Given this, we will take a look at some of the best high-yield stocks under $100.
Our Methodology:
For this list, we first used a stock screener to identify dividend-paying stocks priced below $100 and offering dividend yields above 4% as of January 24. From that selection, we chose 12 companies with strong dividend histories and ranked them in ascending order of hedge funds’ sentiment toward them, according to Insider Monkey’s database of Q4 2023.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A modern city skyline with a REIT retail building at the center to symbolize the company's reach.
Realty Income Corporation (NYSE:O) ranks ninth on our list of the best dividend stocks under $100. The American real estate investment trust company invests in single-tenant commercial properties in the country. The company has been grabbing investors' attention because of its stellar performance historically. Over the past three decades, the company has demonstrated remarkable resilience, successfully navigating significant challenges such as the dot-com crash, the Great Recession, and the COVID-19 pandemic, all while steadily increasing its dividend. Even at the height of the Great Recession, the company's occupancy rates never fell below 96.6%, and they currently stand at approximately 98.7%. This consistent performance underscores its stability, even in tough economic times.
Realty Income Corporation (NYSE:O) focuses on acquiring commercial properties, leasing them out, and distributing the rental income to its investors. By the close of Q3 2024, it owned 15,457 properties across all 50 U.S. states, the U.K., and six European nations, marking an increase from 13,458 properties at the end of 2023. This expansion was largely fueled by its acquisition of Spirit Realty in January 2024. The company primarily rents its properties to retail businesses that tend to perform well even during economic slowdowns.
A major contributor to this reliability is Realty Income Corporation (NYSE:O)'s solid financial foundation, supported by an investment-grade balance sheet. Its substantial size also allows easier access to capital markets, enabling the company to secure favorable debt terms to fuel its growth. In addition, the company pays monthly dividends to shareholders. It has raised its payouts regularly since it went public in 1994. Currently, it offers a monthly dividend of $0.264 per share and has a dividend yield of 5.83%, as of January 24.
According to Insider Monkey's database of Q3 2024, 23 hedge funds, growing from 19 in the previous quarter, held stakes in Realty Income Corporation (NYSE:O). These stakes have a consolidated value of more than $163.5 million in total. With over 1.7 million shares, AEW Capital Management was the company's leading stakeholder in Q3.
Overall O ranks 9th on our list of the best high dividend stocks under $100. While we acknowledge the potential O 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 time frame. If you are looking for an AI stock that is more promising than O but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
