Dividend stocks are perfect investments right now. These companies pay you cash simply for owning shares.
Why should these investments top your buy list right now?
With stocks rising to new heights, it’s important not to try to time the market. Dividend stocks allow you to remain fully invested. Yet these companies also demonstrate less volatility than the market overall, reducing your downside exposure. And if markets do dip again, you can use the cash dividends to buy even more stock at bargain prices.
Want to get started? Here are my top two picks.
Ultimate downside protection
There are few stocks with more reliability and security than Hydro One Limited (TSX:H). If you want to sleep easy at night, this is the investment for you.
But stability isn’t the only thing Hydro One provides. You also have the ability to grow your money over time. That balance of upside potential and downside protection is what makes this an incredible dividend stock.
Hydro One bills itself as a “unique, low-risk opportunity to participate in the transformation of a premium large-scale regulated electric utility.” What exactly does that mean?
Hydro One primarily owns power lines. Its network covers 98% of Ontario. This is a pure middleman business. Electricity companies generate power, and Hydro One delivers that power to consumers. There’s no way around using its services.
This near-monopoly gives the company a lot of market power, so much that regulators limit how much it can charge. These limits also include pricing floors, however, which are set years in advance, greatly limiting downside.
As long as Canadians use electricity, Hydro One will profit, visibility that allows the stock to pay a 4% dividend. Along with 5% annual rate base growth, shareholders can achieve high single-digit annual returns with very little downside, even during a severe bear market.
I love this dividend stock
Hydro One is the epitome of stability, but if you want higher returns, look to Brookfield Property Partners L.P. (TSX:BPY.UN)(NASDAQ:BPY).
For starters, this dividend stock has twice the payout of Hydro One. Due to the coronavirus pandemic, Brookfield has a yield of 8.5%. That’s right. Simply by owning this stock, you can earn an 8.5% dividend. How is that possible?
As its name suggests, Brookfield owns property. Roughly 40% of its portfolio is zoned office, with another 40% designated retail. Despite the work-from-home movement, the vast majority of its office tenants are paying in full each month. Retail is another story, however. Rental receipts have fallen off a cliff.
There’s no doubt that retail is hurting, but because Brookfield owns some of the most desirable real estate in the world, the value of these properties will likely recover over time. That hasn’t stopped the stock price from being crushed, however. Near-term pain forced shares lower by nearly 50%.
Meanwhile, management reaffirmed that the company will survive without issue. In May, several months after the pandemic began, the company reaffirmed its 8.5% dividend.
Now trading at 35% of book value, this dividend stock is a steal in several ways. Even if management cuts the dividend to shore-up cash, the discounted valuation should lead to sizable capital gains.
There’s more risk here, but Brookfield is a fantastic option for dividend investors looking for big near-term upside.
There are dividend stocks on the list below that I like even more.
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The Motley Fool recommends Brookfield Property Partners LP. Fool contributor Ryan Vanzo has no position in any stocks mentioned.