Dividend stocks have been performing well this year as investors seek shelter from stock market volatility. Shares in British American Tobacco, for example, are up almost 25% since the start of the year and a similar amount over the past 12 months.
Buying stocks when they’re popular is always a risky business though. Higher prices mean an increased risk of overpaying for a stock.
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Yet I think that there are some interesting opportunities in dividend stocks that are off their highs at the moment. Here are three in which I’m interested right now.
Legal & General
That’s a big yield, but I’ll need to tread carefully around the stock. If the share price drops by another 21%, then it’ll take a lot of dividends to offset that loss.
I think Legal & General could be a good addition to my portfolio at these levels though. The company’s earnings per share (EPS) have increased consistently over the past 10 years and low prices might just provide an opportunity to reinvest the big dividend payments.
Howden Joinery Group
I’m also looking at shares of Howden Joinery Group (LSE:HWDN). The stock is another member of the FTSE 100 that has had a difficult time this year – the shares are currently 33% lower than they were at the beginning of January.
But given that Howden’s supplies kitchen appliances, fittings, and materials to trade sellers, if the UK enters a recession, I think it might well see its earnings declining.
I don’t think that the falling stock price is entirely unjustifiable. But the company has a strong balance sheet and I think that the shares will prove to be a good investment over time.
In the meantime, there’s a 3.12% dividend on offer. At these levels, I’m extremely interested in buying some shares for my portfolio.
Last on my list is Realty Income (NYSE: O). The company is one of the largest holdings in my portfolio, but the shares have fallen by 11% so far this year.
The company is a Real Estate Investment Trust (REIT) that makes money by owning properties and renting them out to tenants. Realty Income’s main tenants are retailers.
With this type of company, the biggest risk comes from tenants not paying their rents. But Realty Income attempts to minimise this issue by focusing on tenants that have high credit ratings and are naturally immune to the threat of e-commerce.
As a result, the company has excellent rent collection statistics and its dividend has been rising steadily for years. The company distributes its income monthly and the current dividend yield is 4.66%.
Conclusion: buying dividend stocks
Stocks that have a strong history of paying rising dividends to shareholders are often good businesses. As such, it’s not a huge surprise to me that they seem to be holding up comparatively well in a recession.
But some are off their highs and I sense opportunities here for my portfolio. Legal & General, Howden Joinery, and Realty Income all seem attractive to me at current prices.