When it comes to dividend stocks, investors looking for passive income have a lot of choices. But I think some of the best opportunities right now might be where other investors aren’t looking.
That includes some of the less-well-covered corners of the UK stock market as well as over in the US. And there are a couple of examples that stand out to me.
A 10% dividend yield
Shares in Alternative Income REIT (LSE:AIRE) doesn’t get much attention from investors. But the stock comes with a 10% dividend yield and there’s a lot to like about the underlying business.
The company is a real etate investment trust (REIT) that leases a diverse range of properties. What they have in common, though, is long contracts with increases that are linked to inflation.
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Right now, the big risk is the firm’s debt. A £41m loan is set to expire in October and it’s unlikely the business is going to be able to refinance it at the same low interest rate.
That puts the dividend in immediate danger. But with the share price down almost 10% since the start of the year, investors should keep the potential threat in perspective.
Even if Alternative Income’s interest expense doubles, that would result in a 20% hit to the current dividend. And that would mean a passive income return of 8% a year on an investment at today’s prices.
In other words, I think the refinancing risk is reflected in the share price. And with leases having an average of 15 years left, the stock is worth a look for investors after long-term passive income.
A 15% shareholder return
Over the last 12 months, Chord Energy (NASDAQ:CHRD) has returned 15% of its current market value to investors. Around 6% was through dividends and the rest was via share buybacks.
The firm extracts oil from the Williston Basin. With estimated reserves lasting 10 years at $60 per barrel, it doesn’t have the lowest costs, but I still think it’s worth considering.
What sets Chord apart from other oil firms is its focus on returning cash to shareholders. It’s not trying to expand into wind and solar and it’s not really interested in speculative drilling projects.
Chord’s policy is to distribute at least 75% of the cash it generates to investors as long as its leverage ratio remains below 0.5. Right now, it’s at 0.3.
If oil prices head lower in the near future – which is possible – returns could drop. Investors could go from getting 75% of $141m to 50% of a lower number and this could be a big decline.
For anyone with a bullish view of oil prices over the long term, though, I think Chord is well worth considering. That’s why it’s the only oil stock I own in my portfolio and remains on my buy list.
Income opportunities
In both the UK and the US, interest rates look set to fall despite inflation being on the rise. Chances to earn meaningful passive income might be limited in that situation.
In my view, Alternative Investment REIT and Chord Energy are names that deserve more attention than they get. Whether it’s now or in the future, I think they’re worth considering.
