Top Dividend Shares to Invest in Immediately Using a $3,000 Budget
As stock markets have soared, one unfortunate casualty has been dividend returns. The average payout for the S&P 500 has dwindled to merely 1.25%, leaving investors searching for alternatives that offer a guaranteed return of around 5% from certificates of deposit.
Fortunately, there are stocks offering high, sustainable dividends and substantial potential for share price growth, even on a budget of $3,000. A $1,000 investment in each of these stocks can deliver a steady stream of dividend income without jeopardizing the likelihood of stock price growth.
AT&T
AT&T's (T 0.60%) recent dividend history might seem questionable at first glance, given its history of annual payout hikes. However, in 2022, the company stopped this streak, decreasing its dividend by 45%. It has maintained a fixed payout of $1.11 per share since then, yielding 4.8% at current prices. Additionally, AT&T is burdened with a substantial debt of $129 billion, equivalent to its $116 billion in stockholders' equity.
Despite these challenges, the dividend seems stable. Over the past nine months, debt decreased by $8 billion. Moreover, with a forecast of $17 billion to $18 billion in free cash flow for 2024, AT&T has enough resources to pay off debt and meet its $8 billion annual dividend cost.
Furthermore, AT&T has added nearly 1.2 million wireless net customers and over 700,000 fiber net customers in the first nine months of 2024. This growing customer base strengthens the company's business. As a result, investors have been recognizing AT&T's improvements, which have caused its stock price to surge by 45% over the previous year.
With a relatively low P/E ratio of 19, investors may find incentive in purchasing AT&T stock, before any further increase in stock price reduces its dividend yield.
Innovative Industrial Properties
Buying a cannabis-related real estate investment trust (REIT) like Innovative Industrial Properties (IIP) (IIPR -0.94%) might seem counterintuitive at the moment. IIP primarily serves medical cannabis growers, and the 2024 election could slow down legalization progress.
Additionally, in recent quarters, IIP faced issues with non-paying tenants on its 108 properties, causing a temporary halt in its rampant growth. However, IIP has demonstrated its ability to manage such properties by either selling them or finding new tenants to take their place.
Since 2017, IIP has raised its dividend at least once per year. Its $7.60-per-share annual payout yields 7.2%, a figure that is less than its last 12 months of $8.11 per share funds from operations (FFO) income. As a result, the company can continue to sustain its dividend.
Even after the significant pullback following the election, IIP stock has still increased by 33% for the year. Consequently, thanks to the discounted stock price, IIP stock trades at a price-to-FFO ratio of around 13. Between this valuation and the large dividend yield, IIP presents an attractive opportunity to wait for a likely recovery.
Realty Income
Realty Income (O -1.24%) is a REIT that specializes in single-tenant commercial properties, renting them on a net lease agreement, ensuring that the tenant covers taxes, insurance, and maintenance expenses. As a result, the company retains more revenue as profit.
Almost 99% of the company's approximately 15,500 properties have tenants, enabling it to consistently grow its revenue. However, higher interest rates have negatively affected the stock and its profitability over the past few years.
Nevertheless, the lower price has increased the dividend yield. Its $3.16-per-share annual payout yields approximately 5.6%, significantly surpassing the S&P 500 average. Additionally, higher rates have not deterred the company from raising its payout, which has increased at least once per year since its inception in 1994.
Even with Realty Income stock trading more than 30% below its 2020 high, the decreasing interest rates should improve the company's profitability. At a price-to-FFO ratio of about 14, this could set up investors for potential returns from a substantial dividend and future stock price recovery.
In the current financial climate, investors might consider diversifying their portfolio with stocks offering high dividends and growth potential. AT&T's (T 0.60%) dividend, despite a recent decrease, remains stable with a yield of 4.8% at current prices, making it an attractive option for investors seeking income.
As interest rates fluctuate, Realty Income Corporation (O -1.24%) remains a reliable choice for income-focused investors. With its net lease agreement model and consistently growing revenue from approximately 15,500 properties, Realty Income has maintained its dividend yield around 5.6%, even during periods of higher interest rates.
