Bull Market Buys: 3 S&P 500 Dividend Stocks to Own for the Long Run


If you are looking for large companies with attractive yields, this trio of S&P 500 stocks offers yields over 4%.

The S&P 500 Index is currently yielding a scant 1.3% or so. That’s a very low number, but you can do much better if you dig into the index and cherry pick good companies with relatively high yields. Three stocks that should be on your list as potential long-term holdings are UDR (UDR 0.93%), T. Rowe Price (TROW -0.37%), and Realty Income (O 0.28%). Here’s why.

UDR provides homes, a basic necessity

At the end of the day, UDR is a fairly boring real estate investment trust (REIT). It owns around 60,000 apartments in communities in both urban and rural areas. Notably, around 25% of rents comes from the faster-growing Sunbelt region of the country, with 35% from the West Coast, and 40% from the Northeast. It also has exposure to both high-end (A level assets) and middle-rated (B level assets) apartment complexes. In other words, UDR is spreading its bets around in an attempt to create a portfolio that can survive through the typical property cycle.

Right now, things are tough. A glut of new apartments has led to a difficult rental market at about the same time that interest rates have risen, which increases expenses. Investors are worried, pushing the share price down and the dividend yield up to 4.2%. That’s near the highest levels of the past decade, which hints the UDR is on sale right now. But here’s the interesting thing: UDR is telling investors quite clearly that things will improve soon because the number of new apartments opening up for business is set to slow over the next couple of years. If that comes to pass, Wall Street’s view of this REIT is likely to improve materially.

A sticky business and no debt backs T. Rowe Price’s future

If you are looking for dividend stocks without much volatility, you probably won’t like asset manager T. Rowe Price. Although its customer base tends to be very sticky, since investors prefer not to move assets around all that often, its assets under management (AUM) are heavily influenced by market action. And Wall Street can be pretty volatile at times. But T. Rowe Price is ready for the ups and downs because it has no long-term debt on its balance sheet.

The yield here is also near decade highs at 4.2%. The reason is that investors are worried about the shift taking place from mutual funds to lower-cost exchange-traded funds (ETFs). This is a very real problem, but T. Rowe Price isn’t ignoring it. It is offering ETFs and other investment products, like alternative assets, that appear to have growth potential. The good news, as noted, is that customers tend to be sticky, so T. Rowe Price has plenty of time to shift its business around. And you have an opportunity to collect a generous dividend yield while it does so.

Realty Income is the biggest and the best

When it comes to the net-lease REIT niche, one name stands head and shoulders above all others: Realty Income. (A net lease requires the tenant to pay most property-level operating costs.) Continuing a theme here, the REIT’s 4.9% yield is near its highest levels over the past decade. So, as with the other dividend stocks on this list, it looks like Realty Income is on sale right now.

But the real attraction is Realty Income’s scale, with over 15,400 properties. Looking at market cap, it is more than three times the size of its next largest competitor. Add in an investment grade-rated balance sheet, and Realty Income has advantaged access to capital markets. A lower cost of capital means it can be aggressive on the acquisition front and still make profitable purchases. Although this is a slow and steady tortoise, if you like owning the biggest and the best, now looks like a good time to consider jumping aboard.

Three high-yield picks from the S&P 500 index

There’s nothing wrong with simply buying an index fund, but the S&P 500 is meant to be representative of the broader economy and thus isn’t focused on providing investors income. If you are focused on income, you’ll probably want to cherry pick from what amounts to a vetted list in the S&P 500. If you do, you’ll find UDR, T. Rowe Price, and Realty Income are high-yield standouts.

Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.



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