{"id":1317,"date":"2023-04-28T07:06:41","date_gmt":"2023-04-28T11:06:41","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/just-say-no-to-this-14-8-dividend\/"},"modified":"2023-04-28T07:06:42","modified_gmt":"2023-04-28T11:06:42","slug":"just-say-no-to-this-14-8-dividend","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=1317","title":{"rendered":"Just Say No To This 14.8% Dividend"},"content":{"rendered":"
\n

We\u2019re heading towards the most telegraphed recession of all time. At least in recent memory.<\/p>\n

So should we sell everything? Not exactly. Granted, recessions are usually<\/em> bad for stocks. Vanilla investors who own nothing-but-ETFs are in a tough spot.<\/p>\n

But since you\u2019re reading this, I assume:<\/p>\n

    \n
  1. You pick stocks better than a robotic ETF.<\/li>\n
  2. You\u2019re not scared of a stinkin\u2019 recession. You\u2019re here looking for high-yield exceptions to the \u201csell everything\u201d rule<\/em>.<\/li>\n<\/ol>\n

    I appreciate that about you, my fellow contrarian. If I thought rules applied to me<\/em>, I would have made it past age 26 in Corporate America! This is why we get along so well.<\/p>\n

    So, let\u2019s talk recession-resistant exceptions. There are dividend stocks that should skate through a slowdown just fine, but also others<\/em> that should have been sold last week!<\/p>\n

    First, the backdrop. When the economy slows, interest rates fall. This can be quite bullish<\/em> for dividend stocks. Especially \u201csafe havens\u201d like utilities and even select real estate investment trusts (REITs). Really, anything safe that pays<\/em>.<\/p>\n

    <\/fbs-ad><\/p>\n

    High-paying cash equivalents and bonds are competition for dividend stocks like REITs. When investors can get 4% in a money market fund, they are less inclined to reach for Vanguard Real Estate (VNQ
    \n
    \n VNQ
    \n <\/fbs-ticker>)<\/strong>, which yields 3.7% today.<\/p>\n

    But if the economy tanks and rates go back down to 1%? Then VNQ\u2019s dividend is going to look pretty sweet.<\/p>\n

    Provided<\/em> that its constituents can hold up in a recession. Some can, but some can\u2019t.<\/p>\n

    Last week we highlighted Crown Castle (CCI)<\/strong>, VNQ\u2019s fifth largest holding, as a REIT likely to roll through a recession. The cell-tower operator is a landlord for mobile phone traffic, collecting rents via its 40,000 towers (from carriers such as AT&T and Verizon). It\u2019s one of the three major cell-tower landlords in America.<\/p>\n

    While consumers cut back during recessions, the last bill that will go unpaid will be the cell phone bill!<\/p>\n

    CCI has hiked its dividend by a dynamic 49% over the past five years. The company is basically a \u201cgrowth utility\u201d stock in that it\u2019s a toll booth for cell phone traffic. CCI builds the cell towers and then rents them out\u2014a business that turns from capital intensive to cash cow over time.<\/p>\n

    The stock rarely yields this much (4.8%) and rarely trades below its dividend line. But today, we find ourselves on the profitable underside of the magnet:<\/p>\n

    This is exactly<\/em> the type of recession-proof bargain we want to buy now!<\/p>\n

    Office REITs, on the other hand, we should generally avoid. It\u2019s a terrible time to be a commercial landlord, to say the least.<\/p>\n

    Nobody wants your Class A office space, bro. We all work from our kitchen tables. Still.<\/em><\/p>\n

    Last August, I wrote to you asking that we avoid five office space peddlers.<\/p>\n

    Let\u2019s not be fooled by these placid-on-paper book values. The book is stale. These stocks are sicker than they look.<\/p>\n

    They sure were! Look at the deep red since:<\/p>\n

    Sweet crystal ball, huh? Well, when it comes to REITs, forecasting is straightforward. Funds from operations (FFO) drive dividends\u2014for better or for worse. When FFO is climbing, it\u2019s all good. When FFO is about to drop, avoid!<\/p>\n

    Hence the timeliness of my warning last summer. FFO was fine until it wasn\u2019t for these five landlords. Common sense was our edge!<\/p>\n

    These yields have climbed even higher because, well, the stock prices have plummeted because the dividend payments are not sustainable. Avoid!<\/em><\/p>\n

    Retail REITs are dicey too. VNQ\u2019s sixth and seventh largest holdings are Realty Income
    \n
    \n O
    \n <\/fbs-ticker> (O)<\/strong> and Simon Property Group
    \n
    \n SPG
    \n <\/fbs-ticker> (SPG)<\/strong>. They lease brick and mortar buildings for the purpose of shopping.<\/p>\n

    That\u2019s right. In-person shopping.<\/em> (Crowd groans)<\/p>\n

    Granted, not as dead an activity as going to an office. Retail will be around for a while. But landlording over it is not a business I would choose.<\/p>\n

    So sure, the 4.9% and 6.5% headline yields on O and SPG respectively attract attention. And O pays its dividends monthly, which earns the stock brownie points with dividend investors. (In fact, they call themselves \u201cThe Monthly Dividend Company.\u201d Great marketing, sure, but read on\u2014don\u2019t buy the stock.)<\/p>\n

    These two stocks are still<\/em> growing FFO. So what gives?<\/p>\n

    I\u2019m worried this \u201cdividend disaster duo\u201d boasts cash flow on the edge of a cliff. Today, they sit where our office REITs were perched late last summer.<\/p>\n

    These payout engines have stalled. Brick and mortar retail? C\u2019mon man. This is not a growth business. It\u2019s stagnant at best but likely to be worse in the near-term as people cut back their spending.<\/p>\n

    Yes, retail REITs have staged an admirable comeback since 2020. But the party is about to stop. Avoid O, SPG and the rest of their ilk. And VNQ, because its human handlers don\u2019t consider second-level analysis like this!<\/p>\n

    Retail buying slows during slowdowns. This is what always happens. So, let\u2019s avoid these stocks! And choose recession-resistant<\/em> REITs instead.<\/p>\n

    Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

    Disclosure: none<\/em><\/p>\n<\/div>\n

    Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    We\u2019re heading towards the most telegraphed recession of all time. At least in recent memory. So should we sell everything? Not exactly. Granted, recessions are usually bad for stocks. Vanilla investors who own nothing-but-ETFs are in a tough spot. But since you\u2019re reading this, I assume: You pick stocks better than a robotic ETF. You\u2019re […]<\/p>\n","protected":false},"author":1,"featured_media":1318,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-1317","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\nJust Say No To This 14.8% Dividend | iFintechWorld<\/title>\n<meta name=\"description\" content=\"We\u2019re heading towards the most telegraphed recession of all time. At least in recent memory. So should we sell everything? Not exactly. 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