When it comes to dividend investing, there are two broad ways to invest: for income or for income growth. Both are important and can, frankly, be highly complementary to include in the same portfolio.
Right now, for less than $200, you can buy high-yield Toronto-Dominion Bank (NYSE: TD) and dividend grower Rexford Industrial (NYSE: REXR) while they each appear to be attractively priced. Here’s a quick look at each of these discounted dividend stocks.
Toronto-Dominion Bank hits a bump in the road
Toronto-Dominion Bank, more commonly called TD Bank, has a dividend yield of 4.7%. That’s near the highest level in the bank’s history. It is also nearly twice the 2.5% yield of the average bank, using SPDR S&P Bank ETF (NYSEMKT: KBE) as an industry proxy. This is from a bank that has paid a dividend every year since 1857.
That’s not a typo: TD Bank has been around a long time and managed to reliably pay investors through both thick and thin, including the Great Depression and the Great Recession. Note that TD Bank didn’t cut its dividend during the Great Recession, as was the case with many of the largest U.S. banks. If you like to buy reliable dividend stocks when they look cheap, well, TD Bank fits the bill.
But that leaves the question of why TD Bank stock is on sale. Without getting into the ugly details, the company’s money laundering controls in the U.S. market failed. The fallout has been material for the bank, with the cancellation of a planned merger, added costs for improving its internal controls, and the need to set aside roughly $3 billion for the fines and legal costs the company expects to face.
On top of that, TD Bank will now have to rebuild trust with regulators and investors. Growth, especially acquisition-driven expansion in the United States, will likely be on hold for a little bit, maybe even a few years.
That’s bad, but TD Bank remains an industry giant with a solid foundation in its home market of Canada. It still has an investment-grade-rated balance sheet. And it doesn’t seem like there’s a material risk of a dividend cut.
If you don’t mind collecting a fat dividend while you wait for management to work through this headwind, buy now while Wall Street is, perhaps unreasonably, downbeat on TD Bank.
Rexford Industrial just keeps growing (its dividend)
Rexford Industrial is a real estate investment trust (REIT) with a laser-like focus on industrial assets in the Southern California market. It is currently offering a dividend yield of about 3.5%. That’s actually a bit lower than the REIT average of 3.7%, using Vanguard Real Estate Index ETF (NYSEMKT: VNQ) as an industry proxy.
However, it is toward the high end of the REIT’s own historical yield range. That suggests the stock is cheap, historically speaking. The premium over the average REIT, meanwhile, is likely because Rexford’s compound annual dividend growth rate over the past decade was roughly 13.5%. That’s a shockingly high number for a REIT.
The key here is that Rexford’s chosen regional and property focus, while very narrow, is working out very well. The Southern California industrial market is one of the largest in the country and the world, as it serves as a gateway from Asia into the U.S. market. It is supply constrained because of tight permitting and the ongoing transition of industrial assets to other uses, like housing.
Rexford has a long, successful history of investing to upgrade its properties, so the company can charge higher rents. And, given that Rexford only owns around 2.7% of the market in which it has chosen to focus, there looks like there’s plenty of room for growth ahead.
If you like dividend growth stocks, Rexford not only looks like it is on sale today, but it seems like there’s no reason to expect the REIT’s growth to stall out, either.
Maybe buy them both?
High-yield stocks like TD Bank provide income today, perhaps to support spending needs in retirement. Dividend growth stocks like Rexford allow investors to grow their income over time, with the goal of outpacing the ravages of inflation. While you might pick one approach (and stock) over the other, maybe you should consider pairing them up, noting they are both trading well below $200 and, together, they can generate income for today and tomorrow.
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Reuben Gregg Brewer has positions in Toronto-Dominion Bank. The Motley Fool has positions in and recommends Rexford Industrial Realty and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.
2 No-Brainer Dividend Stocks to Buy Right Now for Less Than $200 was originally published by The Motley Fool
