I read a recent Barron’s article about some of the reasons high-yielding dividend stocks could rebound.
Barron’s noted BMO Chief Investment Strategist Brian Belski comments that there’s been indiscriminate selling of high-yield dividend stocks by investors. The reason? You can get guaranteed returns of nearly 5% from 10-year Treasuries.
The strategist pointed out that only during the pandemic and in the tech bubble did high-yielding dividend stocks underperform the S&P 500 over the past 30-odd years, suggesting that now was a perfect time to buy some of the down, but not out, cohort of stocks.
“[I]t may be surprising to some that the strongest average outperformance of these stocks has occurred when the 10-year Treasury yield ranged between 4% and 6%, significantly higher than the average outperformance at lower yield levels,” Belski says, according to Barron’s.
Barron’s contributor Teresa Rivas provides a list of high-yielding stocks to buy that Belski also rates highly. Here are the three names I like from the list of 11 names.
Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) has the highest dividend yield of the trio at 4.81%.
The bank reported earnings on Oct. 18. Investors took issue with the results of its investment banking and wealth management divisions. Its shares dropped 7% on the news.
While the bank delivered earnings per share of $1.38, seven cents higher than the consensus estimate, and its revenue of $13.3 billion was $100 million higher than analyst expectations, investors took its stock down due to a 27% decrease in investment banking revenues, while its wealth management business only added $36 billion in net new assets.
CEO James Gorman was upbeat about the quarterly results. As he said about the numbers from both areas, they’re prone to bouncing around from quarter to quarter. With MS stock down nearly 18% on the year, now could be an opportune time to grab some income at a reasonable price.
About a week later, the company announced that Ted Pick, its co-president, would take over from Gorman as CEO. However, the man who turned Morgan Stanley into a wealth management dynamo will still be around the office serving as Executive Chairman.
Host Hotels & Resorts (HST)
Host Hotels & Resorts (NYSE:HST) has the second-highest dividend yield at 4.67%.
The REIT’s August 2023 presentation says it has 77 hotels with 41,900 rooms. Of those rooms, 71% are Upper Upscale, another 26% are Luxury, and the remaining 3% are either Upscale or Midscale. Of the hotels, 87% are branded properties, with Marriott International (NYSE:MAR) accounting for 60% of Host’s 2022 revenue.
That makes sense. Host Marriott was spun off from Marriott International in 1993. In January 1999, it was turned into a REIT. It became Host Hotels & Resorts in 2006 after acquiring 34 hotels from Starwood Hotels & Resorts Worldwide.
Analysts are generally favorable about its stock. Of the 23 that cover HST, 16 rate it Overweight or an outright Buy, with a target price of $21 — 36% higher than where it’s currently trading.
With a nicely diversified clientele — approximately one-third for business, leisure and group travel — Host’s business should remain strong regardless if a recession hits in 2024.
Ventas (NYSE:VTR) has the lowest dividend of the list at a respectable 4.27%.
If a stock disappointed me, the owner of senior housing and healthcare properties would be it. In November 2018, I included CEO Debra Cafaro on a list of seven women-led companies delivering outsized returns.
Cafaro, who’s run the company since 1999, was, in my opinion, one of the better CEOs, male or female, in the S&P 500. I felt it was a good stock to play to ride the aging baby boomers.
Since my November 2018 article, Ventas shares have lost 31% of their value. However, thanks to the dividend, its annualized total return over the past five years is slightly more palatable, down 2.26%.
Well, if you listen to activist real estate investor Land & Buildings (L&B), there is a whole laundry list of grievances against the company and its management.
“While Land & Buildings hopes to reach a constructive resolution with Ventas, it will not hesitate to do whatever is necessary to maximize value at the company for its long-suffering shareholders,” Senior Housing News reported L&B founder Jonathan Litt’s comments from September.
I’ve followed Litt over the years. Sometimes, he’s right about the companies he aims to shake up, and sometimes he’s wrong about them.
If you’re an income investor, Ventas remains a stable, if not spectacular, long-term buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.