As the US Federal Reserve takes a breather from its rate-hiking spree, dividend stocks are poised to regain their allure. With interest rates on the decline, income-focused investors may soon pivot away from CDs and T-bills and back towards dividend-paying equities. Realty Income, AT&T, and Opera Limited are three compelling options to consider.
Realty Income, a real estate investment trust (REIT), boasts a 5% forward yield and a 27-year history of monthly dividend payments. Its diversified portfolio of 15,450 properties across the US, UK, and Europe, rented to tenants in 90 industries, provides a stable source of income. Despite recent headwinds, Realty Income’s adjusted funds from operations (AFFO) grew 6% annually from 2020 to 2023, and its stock remains undervalued at 16 times last year’s AFFO.
AT&T, having shed its media assets, has refocused on its core wireless and fiber businesses. The company’s revenue growth may be modest, but its free cash flow surged 19% to $16.8 billion in 2023, comfortably covering its $8.1 billion in dividends. With a forward yield of 5% and a price-to-earnings ratio of just 10, AT&T’s stock looks attractively priced.
Opera Limited, though often overlooked, offers a compelling combination of growth and income. Its user base may be shrinking, but the company is offsetting this decline by introducing AI-powered tools and integrated ads. Analysts expect revenue to rise 17% in 2024 and 15% in 2025, with adjusted earnings growth of 23% in 2025. With a forward dividend yield of 5.4% and a sustainable payout ratio, Opera’s stock looks undervalued at 13 times next year’s earnings. As interest rates decline, these three dividend stocks could become increasingly appealing to income-starved investors.
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