Two Notable Dividend-Yielding Shares to Acquire Immediately with a Budget Under $500
Risky scenarios aren't always detrimental, that's the broader takeaway when analyzing real estate investment trust (REIT) W.P. Carey (WPC -0.64%) and financial giant Toronto-Dominion Bank (TD -1.04%). Currently, both high-yield stocks are experiencing tough times, but they aren't teetering on the brink of collapse.
In fact, there are compelling reasons to believe better days are ahead. If you have $500 or even $5,000, it might be prudent to examine these stocks while Wall Street remains skeptical of their shares.
W.P. Carey encountered a dividend restructure, not a reduction
As 2024 commenced, W.P. Carey shareholders encountered a reduction in the quarterly dividend, which shifted from around $1.07 per share to $0.86. This reduction coincided just as the REIT would have achieved 25 consecutive annual dividend increases, thereby coming as a surprise to some investors.
Don't be deterred by this dividend cut from buying W.P. Carey. It was actually a reconfiguration that sets the company up for an optimistic future. Towards the end of 2023, W.P. Carey made a decisive move to withdraw from the office sector in one swift action, instead of gradually reducing its exposure, as it had been doing for years.
The rationale behind this change in strategy is the office sector's present challenges, stemming from the work-from-home trend that emerged during the COVID-19 pandemic. This decision likely saved investors from having to endure years of moderate and consistent write-offs as office properties purchased years ago were sold at a loss.
The decision also strengthened W.P. Carey's overall portfolio, which is now centered on industrial, warehouse, and retail properties. These sectors are likely to be more appealing in the long term than office properties. Moreover, this office exit left W.P. Carey with substantial liquidity (in the form of cash and lines of credit) to invest in the attractive assets on which it now focuses.
This development indicates that growth will pick up in 2025, given that management will need time to allocate its available cash.
The lucrative opportunity ahead is underscored by the fact that the dividend resumed increasing the quarter following the restructure and has even returned to the same quarterly increase cadence that existed prior to the restructure. If the dividend restructure were motivated by weakness, management wouldn't have reconvened to increase the payment so swiftly.
If you think in decades rather than days, W.P. Carey and its 6.2% dividend yield is an appealing, low-risk turnaround opportunity.
Toronto-Dominion Bank will experience a brief lag
Recently, Toronto-Dominion's shareholders have been affected by a money laundering case in its U.S. division. Regulators have imposed a fine, demanded improvements to internal controls, and imposed an asset cap on the bank.
It's a setback for Toronto-Dominion. 2025 will be a challenging year as the bank implements the changes necessitated by this regulatory scrutiny. Understandably, investors are displeased, and the stock has taken a hit. The dividend yield currently stands at a historically high 5.1%.
The immediate challenge is that the asset cap prevents the U.S. division from expanding until Toronto-Dominion has restored regulator confidence. It could take several years to restore the trust that the bank has lost. Although Toronto-Dominion's successful Canadian business isn't affected by these issues, the U.S. had been expected to serve as the company's growth engine.
However, the typical bank stock, using SPDR S&P Bank ETF as an industry benchmark, offers a yield of only 2.1%. Meanwhile, Toronto-Dominion remains financially solid and appears unlikely to reduce its dividend (in fact, it recently boosted the payment by 3%).
If you're willing to collect a yield that's more than double the industry average while Toronto-Dominion navigates the money-laundering issue, you might want to consider adding it to your portfolio. The risk/reward balance seems to favor patient, long-term income investors.
Purchasing when others are fleeing
Perfect investments or companies don't exist, even well-managed ones may encounter temporary setbacks. As it appears, W.P. Carey and Toronto-Dominion Bank are facing their share of hardships. If you can stomach some short-term uncertainty, purchasing now -- while other investors are rushing for the exits -- might leave you with a substantial income flow and the potential for strong capital appreciation over the long term.
In light of the dividend restructure, W.P. Carey's decision to exit the office sector and focus on industrial, warehouse, and retail properties could lead to growth in 2025, making it an appealing low-risk turnaround opportunity with a high dividend yield. Investors with a long-term perspective might find purchasing W.P. Carey stocks during Wall Street's skepticism to be prudent.
Toronto-Dominion Bank's current challenges stemming from a money laundering case in its U.S. division might make the stock seem volatile, but the historically high 5.1% dividend yield offers a chance for patient, long-term income investors to collect more than double the industry average while the bank navigates the issue, presenting an attractive risk/reward balance.
