I’m due to receive some dividends in the next few days and I intend to use that money to buy stocks. I think there are some great opportunities right now with interest rates at their highest levels in over a decade.
One strategy for building wealth involves reinvesting dividends back into the businesses that they came from to earn more income in future. That’s a fine plan, but I’m looking at something different for this week.
Dividends
I’m expecting to receive dividends from brick manufacturer Forterra and retail property landlord Realty Income this week. Both are due to be paid on 13 October, giving me time to work out where I’d like to invest the cash I receive.
At the moment, I think that both stocks are trading at pretty good prices. So I’m not entirely ruling out buying more shares of either when the time comes.
That isn’t my plan right now, though. I’m expecting to use my dividend income this week to buy shares in a couple of different businesses.
The main reason for this is that I think there are some unusually good opportunities elsewhere in the stock market at the moment. But there’s an added benefit of diversifying my portfolio to help protect against certain types of risk.
The PRS REIT
House prices in the UK have been under pressure lately and that’s been weighing on Forterra’s outlook. But I think this could be a good time to diversify my exposure to the UK housing market.
That’s why I’m looking at buying shares in PRS REIT (LSE:PRSR). The company is a real estate investment trust (REIT) that owns and leases just over 5,000 houses across the UK.
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Following a 25% decline since January, the dividend yield has reached 6%. That might be a sign investors are concerned, but with 97% of properties occupied and 99% of rent collected on time, I don’t see an issue here.
The main risk I’d want to keep an eye on as an investor is debt. The company currently pays an average of 4.2% on its debt, but if rising interest rates take this higher, it might impede the company’s ability to grow its portfolio.
At today’s prices, though, I think the company just needs to stay out of trouble to be a good investment. And I think it can do this, so I’m looking to buy the stock this week.
Diageo
It’s not often that shares in Diageo (LSE:DGE) trade at attractive prices. But I think there’s an unusual opportunity with the drinks manufacturer’s stock at the moment.
The stock has fallen by 15% over the last 12 months, partly due to some legal issues, which remain an ongoing risk. In my view, though, the long-term outlook for the business seems pretty robust.
What impresses me most about Diageo is its ability to maintain its margins. Over the last decade, the company’s average operating margin has been 27.4%.
That even compares favourably with Coca-Cola (25.7%), which is widely regarded as one of the best businesses in the industry. Its dividend is also growing at a similar rate, which is encouraging for the long term.
