2 dividend stocks down 30% this decade to consider buying right now

Stephen Wright thinks dividend stocks in the property sector are selling at extremely attractive prices. Two in particular stand out to him.

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Falling share prices mean better yields for passive income investors. And there are a couple of dividend stocks that stand out to me at the moment.

Both are real estate investments trusts (REITs). The property sector has been hit harder than most by rising interest rates recently, but I think this makes it a good place to go looking for stocks to buy.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

REITs

REITs are businesses that make their money by owning and leasing buildings. Some focus on one type of property, others own a more diversified mix. 

Ordinarily, companies can choose what to do with the cash they generate. They can use it to pay down debt, invest it for future growth, repurchase their own shares, or pay it out as dividends.

REITs have less flexibility than other businesses, though. In exchange for beneficial tax status, they are required to distribute 90% of their taxable income to shareholders via dividends.

The inability to retain their earnings makes it more difficult for them to grow. But from a passive income perspective, it can make them very attractive.

Healthcare

Primary Health Properties (LSE:PHP) is a FTSE 250 REIT that focuses on health centres and GP surgeries. The firm’s portfolio consists of 513 buildings.

The stock has fallen 46% since August 2021, pushing the dividend yield up above 7%. The underlying business looks to me like it’s steadily moving forward. 

During 2023, rental income increased by 5.5%, most driven by higher renewal rates. And the portfolio is still over 99% occupied, mainly by government agencies that are unlikely to default.

A high loan-to-value ratio is a risk when Primary Health Properties has to refinance its own debt. But the majority of this is a long way off and lower interest rates should help with it.

Retail

The rise of e-commerce has led to a decline in demand for retail properties. But I think that US-listed REIT Realty Income (NYSE:O) is well-positioned to keep moving forward.

The shift to online shopping during the pandemic may have eased, but physical retail still faces challenges. So it’s perhaps unsurprising the stock is 34% below its pre-pandemic levels. I think the 6% dividend yield looks like an opportunity though.

The firm’s focus on quality tenants in industries less affected by e-commerce – such as grocery and convenience stores – has been effective for shareholders. And I think it can keep going.

Admittedly, focusing on tenants with strong credit ratings makes rent increases harder to negotiate. At today’s prices, though, I don’t think the company needs to do much to be a good investment.

Consistency

Besides significant price declines and high yields, the two REITs I’ve identified here have two things in common. The first is that they’re both focused on specific industries.

While there’s some merit to diversification, I quite like this. It allows management to develop a closer understanding of the specialist sectors.

The other thing they have in common is a strong track record of dividend growth. Each company has over 25 years of consecutive dividend increases.

That’s no guarantee of what will happen in the future. But I do think it’s a sign of a robust business model that has proven itself through difficult times before.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Primary Health Properties Plc and Realty Income. The Motley Fool UK has recommended Primary Health Properties Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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