Investors should be happily rubbing their hands as the shares of companies with solid underlyings that pay attractive dividends fall sharply. Why? You get the chance to buy with great upside potential plus a higher dividend yield.
Start rubbing those hands. Here are two dividend stocks with a 38% to 49% drop that you can buy right now.
1. Digital Realty trust
Shares of Digital Realty trust (DLR 1.36%) are down 38% so far this year. Investors are concerned about the impact of rising interest rates and a gloomy economic outlook on the data center real estate investment trust (REIT).
But Digital Realty Trust’s business continues to run quite well. The company reported revenue of $1.2 billion in the third quarter of 2022, up 5% year-over-year and on a sequential basis. Funds from operations were up nearly 3.4% year over year to $462.3 million.
Admittedly, Digital Realty has lowered its full-year 2022 outlook. The REIT now expects core funds to operate at $6.70 to $6.75 per share, down from the previous indication range provided in February of $6.80 to $6.90. However, CEO Bill Stein stated in the company’s Q3 call that management expects “the strong secular trends driving demand for third-party data centers to continue for years to come.”
Meanwhile, Digital Realty’s dividend yield surpasses 4.4%. The company has increased its dividend for 17 consecutive years. I fully expect this impressive streak to continue for a long time to come.
2. Trust in medical property
Trust in medical property (MPW 0.31%) (MPT) is another REIT whose stock price has fallen in 2022. The stock is down 49%. At one point this summer, shares of MPT were down nearly 60% year to date.
As was the case with Digital Realty, MPT’s business seems to be in pretty good shape. Normalized funds from operations were up 3.6% year over year in Q3 to $272.3 million.
The outlook for hospital operators who are MPT’s tenants appears to be improving. Medicare increases reimbursements. MPT CEO Ed Aldag said during the Q3 conference call that tenants hope to negotiate even higher repayment rates with other payers.
Investors have a lot to say about MPT’s dividend. The rate of return is currently close to 9.4%. The company has also increased its dividend for eight consecutive years.
It’s possible that both REIT stocks could fall further before recovering. Digital Realty expects that the macroeconomic uncertainty could cause customers to take longer to make decisions. MPT’s Aldag acknowledged that the enhanced repayment scenario for its tenants “might not be immediate.”
The actions of the Federal Reserve could also weigh on both stocks. Higher interest rates increase borrowing costs for both Digital Realty and MPT. This makes it more challenging for the two companies to expand.
Don’t expect Digital Realty and MPT to boom in the coming months. However, patient investors should be able to realize market-based returns over the long term – and large dividends at the same time.
Keith Speights has no position in any of the listed stocks. The Motley Fool has positions in and recommends Digital Realty Trust. The Motley Fool has a disclosure policy.