The benchmark S&P 500 index keeps reaching new highs, but not all of its components have participated in the rally. Royalty Pharma(NASDAQ: RPRX), W.P. Carey(NYSE: WPC), and Omega Healthcare Investors(NYSE: OHI) are three dividend payers with stock prices that have fallen recently.
At their beaten-down prices, these stocks offer juicy dividend yields, and there’s a good chance they can maintain or raise their payouts for at least a decade. Here’s why adding these stocks to a diverse portfolio looks like a smart move right now.
Shares of Royalty Pharma have fallen by about 20% from a peak they reached this spring. Its quarterly dividend payment, though, has risen by 40% since 2020. At recent prices, the stock offers an unusually large 3.3% dividend yield that could keep climbing throughout your retirement.
Royalty Pharma is a specialty financier for the biopharmaceutical industry, and there’s no shortage of demand for its capital. It generally invests just before or after new drugs earn approval. Instead of betting on companies, it invests in the drugs themselves and its track record is remarkable.
Royalty Pharma has invested in over 80 assets since its inception in 1996. At the moment, 15 of them generate over $1 billion in annual sales.
Investors can look forward to continued growth of Royalty Pharma’s bottom line and dividend payout. Recently, the company acquired a 13.8% royalty on U.S. sales of Niktimvo, a recently approved treatment for graft versus host disease (GvHD) from Syndax Pharmaceuticals.
Syndax and Incyte will commercialize Niktimvo in the U.S., where Incyte’s Jakafi is already a top-selling GvHD therapy. With help from Incyte, Niktimvo sales are expected to exceed $1 billion annually, and Royalty Pharma could receive royalties on the drug through 2038.
Shares of W.P. Carey have been under pressure since the company spun off its office-building portfolio in 2023. The real estate investment trust (REIT) lowered its dividend payout last year to account for the lack of office buildings. Fortunately, the well-run REIT has been able to raise its payout every quarter since the spinoff.
W.P. Carey stock offers investors a juicy 6.3% dividend yield at recent prices. The company leases its huge portfolio of 1,430 properties to around 346 tenants. Investors can look forward to steady gains from this REIT because none of those tenants are responsible for an outsized portion of total revenue.
At the end of September, Extra Space Storage was the REIT’s largest tenant. It’s America’s largest operator of self-storage facilities but accounts for just 2.7% of W.P. Carey’s annualized base rent. The REIT’s top 10 tenants only account for a combined 20.2% of annualized base rent.
In addition to a diverse tenant list, W.P. Carey boasts geographic diversification with less than three-fifths of annualized base rent coming from the United States. The REIT is even prepared to overcome another round of inflation, with a majority of its rental agreements linked to consumer-price indexes.
Omega Healthcare Investors is a net lease REIT in the nursing-home niche. It has held its dividend payout in place since 2019. Unfortunately for its long-term shareholders, the stock is down about 13.6% from its pre-pandemic peak.
At its beaten-down price, the nursing-home REIT offers investors an eye-popping 6.9% dividend yield. It might not become the fastest-growing dividend payout in your portfolio. As the largest REIT in the nursing-home niche, though, it’s one of the more reliable payouts you’ll receive throughout your retirement years.
Omega Healthcare Investors has been under some pressure because one of its tenants, LaVie, filed for bankruptcy with nearly $1.2 billion in debt this June. Omega leans on LaVie for rent payments that total about $3 million a month, or a little less than 4% of total rental income.
As a net lease REIT, Omega Healthcare doesn’t need its operators to succeed — it just needs them to pay rent. Despite declaring bankruptcy, LaVie has kept up with rent payments.
This year, management expects adjusted funds from operations, a proxy for earnings, to reach $2.85 per share at the midpoint of management’s guidance range. That’s enough to maintain a dividend payout currently set at $2.68 annually.
A dividend raise in the near term doesn’t seem likely, but investors can reasonably expect some payout bumps down the road. In the first 10 months of the year, the REIT invested about $834 million into new sources of rental revenue. Adding some shares to a diverse portfolio now could lead to lots of passive income once you’re ready to retire.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Incyte. The Motley Fool recommends Extra Space Storage. The Motley Fool has a disclosure policy.
