3 Bear Market Buying Opportunities Income Investors Won't Want to Miss

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The bear market has brutalized stock prices over the past year. However, there is a benefit to the decline in market values: Dividend yields have risen. This means investors can lock in higher income streams on some high-quality dividend stocks.



3 Bear Market Buying Opportunities Income Investors Won't Want to Miss


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3 Bear Market Buying Opportunities Income Investors Won’t Want to Miss

Three great income buying opportunities that have emerged in the bear market are Alexandria Real Estate Equities (NYSE: ARE)Digital Realty (NYSE: DLR), and Prologis (NYSE: PLD). Here’s why dividend-focused investors will want to take advantage of this situation.

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1. Alexandria Real Estate Equities: A healthy payout

Alexandria has lost nearly 30% of its value since the market peaked in early 2022. That has driven the real estate investment trust’s (REIT) dividend yield up over 3%. It’s nearly double the 1.7% dividend yield of the S&P 500 and approaching the office REIT’s highest level in the last five years. 

While many of its peers in the office sector are facing headwinds from remote work, Alexandria is relatively immune to that trend because it focuses on owning laboratories leased to healthcare companies that require in-person work. Instead of harming its business, the pandemic has driven up demand for lab space.

That’s evident by robust rent growth. Rents on new and renewal leases signed last year were 34.3% higher than those on the same space. Strong demand for lab space also enables the REIT to invest in its large pipeline of development projects. It can easily fund those projects with retained cash after covering its dividend (it has a low 56% FFO payout ratio) and a balance sheet that ranks among the top 10% of all publicly traded REITs.

These catalysts should enable Alexandria to continue growing its dividend. The REIT has increased its payment by 5% over the past year and grown it at a 6.5% annual pace over the last five years. 

2. Digital Realty: The streak should continue

Digital Realty’s stock tumbled nearly 40% since last year’s market peak. That has driven the data center REIT’s dividend yield up to 4.6%, approaching its best level since 2016.

While concerns about a slowdown in tech-related spending have weighed on the REIT’s valuation, it has not yet seen any deceleration in demand. The company delivered another record quarter of bookings in the third quarter, its third record in the last four periods. That’s enabling it to maintain strong occupancy levels at its existing data centers and continue developing new ones.

The company also continues to find opportunities to expand its global data center portfolio via acquisition. It recently acquired a majority stake in South African data center operator Teraco for $1.7 billion. 

Those growth drivers should enable Digital Realty to continue increasing its dividend. It gave investors a 5% raise last year, extending its streak to 17 straight years of dividend growth. That kept it in the elite group of REITs that have increased their payouts each year since their initial public offerings. 

3. Prologis: More growth ahead

Shares of Prologis have slumped 30% since the bear market began. That sell-off helped drive its dividend yield up to 2.6%, near its best level in the last few years. 

The industrial REIT was under pressure last year, even though it was another excellent one for the company. While its growth rate slowed in the fourth quarter, it still grew its FFO by 12.7% per share for the full year. Meanwhile, despite a weaker economy, Prologis sees its FFO per share rising by another 9.5% this year. Given its embedded rent growth and vast development pipeline, it could continue growing at a healthy rate in future years. 

These drivers should enable Prologis to continue increasing its dividend at an above-average pace. The company gave its investors a 25% raise last year and has grown it at a 12% compound annual rate over the last five years. 

Great times to buy more income

The sell-off in Alexandria, Digital Realty, and Prologis has pushed their dividend yields to their highest level in the last few years. Because of that, the bear market has created great buying opportunities for income-seeking investors. They can lock in a higher yield in these top-notch dividend stocks, which will likely continue increasing their payouts in the future.

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Matthew DiLallo has positions in Digital Realty Trust and Prologis. The Motley Fool has positions in and recommends Alexandria Real Estate Equities, Digital Realty Trust, and Prologis. The Motley Fool has a disclosure policy.

 

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