If a bull market emerges in 2023, potential investors in dividend stocks will be in a race against time to buy stocks while prices are low and dividend yields are high. After a rise, these companies may no longer be bargain priced, and that means it’s best to wait for the stock to fall once more, wasting valuable time accumulating dividends in the process.
With that in mind, let’s look at a couple of passive income stocks. One of the two is ready to buy today, but the other is a tempting trap. This is why.
1. Alexandria Real Estate Stocks
Alexandria Real Estate Equities (IS IT SO 0.80%) is a dividend stock it’s worth buying early as a long-term hold to generate a ton of passive income. The company specializes in leasing space for biomedical laboratories, which it builds in cities like Boston that are centers of scientific research and global healthcare businesses.
Its tenants include a handful of major biomedical companies you’ve probably heard of, including heavy hitters like Pfizer Y Modern. That means your tenants can be counted on to pay their rent year after year without incident, making your profits pretty safe for investors.
Right now, its forward dividend yield is just over 3.3%, and over the past five years, its payout has grown 34.4%. In the same period, its cash from operations for the last 12 months increased by 153.4%, to exceed $1.1 billion. That suggests its strategy has lasting traction with potential tenants, as does its 94.3% occupancy rate in the third quarter.
It also suggests that when a bull market makes it more attractive for smaller biomedical players to issue new shares to raise capital, there will be an increase in the number of companies looking to lease space in Alexandria. If that happens, the people who bought the shares early will see a nice profit.
Alexandria is well positioned to continue to expand its facility footprint (and its bottom line), despite headwinds such as inflation and rising Interest rates. It has more than $533 million in cash and equivalents to spend on acquisitions, and its total debt load of around $10.9 billion isn’t very large compared to its market capitalization of around $23.7 billion. .
In addition, its credit rating is in the top decile of all public real estate investment trusts (REITs) in the US, so you shouldn’t have a hard time borrowing at an attractive rate to get even more cash to grow, should the need arise. In sum, there is little in the way of red flags With Alexandria, and as long as the biomedical sector continues to grow, it will continue to have enough capital to increase its dividend while it expands for the long term.
2. Medical Estate Trust
Like Alexandria Real Estate, Medical Estate Trust (MPW -4.78%) it’s a REIT, but its target tenants are hospitals and clinics, in which it sometimes makes direct investments as well. But the similarities start to end there. Instead of growing steadily year-over-year, its trailing 12-month cash from operations fell 2.4% over the past four quarters to just over $792 million, and there’s reason to believe its pace of expansion could slow further. plus.
Problem number 1 is that your target tenants are not experiencing much growth in any way that consistently benefits the Medical Properties Trust. After all, the demand for new hospitals is unlikely to be very high in the long term in the US, especially if population growth is not high and existing hospitals continue to be as efficient in the use of their space. like in the past.
Remember, health care expenses can continue to rise fairly quickly, but it takes the same amount of physical space to run a cheap generic drug as it does to run the expensive brand-name version of the same drug, so the increase in expenses is not it is in itself. a positive sign for future demand for hospital floor space.
Growth woes aside, it’s unlikely the business will be able to return much more capital to investors in the near future than it is today. Its forward dividend yield is almost 10%, which is enticingly high. But its dividend has only grown a paltry 16% in the past five years, and its total debt-to-market capitalization ratio is more than double that of Alexandria. That means its total debt of about $9.5 billion is a proportionately larger burden when it comes to the cost of borrowing capital to finance the purchase of new rental properties.
Overall, MPT is not as attractive an investment as Alexandria, and that may not change anytime soon. However, if it can significantly reduce its debt load, it could potentially become a competitive option, although it will have to work towards that goal for several years before it attracts investors.