3 Stocks Paying 3% Dividend

Stocks Paying 3 Percent Dividend: With a possible recession looming, there is more incentive than ever to seek out stability, and dividend paying stocks offer a more sturdy path than risky growth stocks.

Here are three dividend stocks that pay 3 percent or more.

Essex Property Trust

Essex Property Trust (NYSE:ESS) is a REIT that focuses on multifamily properties in key markets along the West Coast. The trust holds properties in several major California cities, including San Diego, Burbank, Los Angeles and San Fransico. Essex is also active in the lucrative Seattle market in Washington.

Essex Property Trust currently yields 3.72 percent, paying an annual dividend of $8.80 per share. The company has successfully raised its dividend for 29 consecutive years. It should be noted that as a REIT, Essex has a dividend payout ratio that would be considered unsafely high for other businesses. At the time of this writing, Essex is paying out 140 percent of its reported earnings as dividends.

One of the core arguments in favor of Essex as a long-term income stock is its focus on high-quality properties in prime locations. Unlike broader REITs, Essex plays to its core competency of investing in lucrative West Coast markets. This approach allows Essex to maximize returns from its investments.

The company has also shown an impressive ability to generate growth in trying market conditions. In Q4, the company reported an increase of 36 percent in net income over the previous year. While total FFO dipped below its 2021 numbers, core FFO actually increased by 16 percent. Essex also maintains $1.3 billion in total liquidity, giving it the ability to pursue new investments in 2023.

While Essex is an attractive option for buy-and-hold income investors, it should be noted that the company’s dividend growth could slow in the coming years. Analysts project a 3-year forward growth rate of 2.6 percent, compared to a trailing 3-year rate of 4.1 percent. There does not, however, appear to be any immediate danger of Essex breaking its streak of dividend increases.

Stanley Black & Decker

Tool giant Stanley Black & Decker (NYSE:SWK) is among the dividend kings, having raised its distribution for 55 consecutive years. The stock currently yields 3.59 percent and pays $3.20 per share annually.

In addition to having a longer history of dividend increases than Essex, Stanley Black & Decker may also have a higher level of dividend safety. The company maintains a payout ratio of just over 47 percent, giving management a good amount of headroom to accommodate future dividend hikes. Over the next three years, the dividend is expected to continue growing at a compounded rate of 2.2 percent.

SKW may also see its share prices rise reasonably well over the coming years. The stock is expected to gain about 6.5 percent over the next 12 months. Over the next five years, the company could see compounded growth of up to 24 percent. In this event, Stanley Black & Decker would likely see considerable appreciation in its share prices.

Although the company has seen its earnings slide briefly into negative territory, Stanley Black & Decker has also managed to outperform analyst expectations. In Q4, the tool giant reported a loss of $0.10 per share against a consensus estimate of $-0.33 per share. Expected EPS for the forward 12-month period is currently $5.30.

A final reason to like Stanley Black & Decker is its potential to tap into new government spending projects. As Congress continues to appropriate funds for infrastructure, companies that manufacture building materials, heavy equipment and tools are all likely to benefit. This would naturally include Stanley Black & Decker due to its significant presence in the market for handheld power tools.

Federal Realty Investment Trust

Rounding out this list is Federal Realty Investment Trust (NYSE:FRT). Founded in 1962, this REIT focuses on properties in eight major metropolitan areas around the United States. Like Essex, this approach allows Federal Realty to target properties in narrow markets it understands well. The company currently holds 105 properties that house approximately 3,100 tenants.

Federal Realty Investment Trust is also among the longest-standing dividend kings, having raised its payout for 55 years. Today, Federal shares yield 3.96 percent and pay $4.32 annually. Being a realty trust, Federal’s payout ratio stands at 92.5 percent.

Despite having an extremely long history of growth, Federal Realty Investment Trust has slowed down its dividend increases in recent years. Over the past three years, the payout has grown at a compounded rate of just 1.3 percent. This pace is expected to continue largely unchanged for the next three years.

Although its dividend is likely to grow at a slower price than either Essex or Stanley Black & Decker, Federal Realty Investment Trust could see the highest short-term total returns of these three stocks. The 12-month median target price for the stock is $118, up 8.2 percent over the most recent trading price. Combined with its dividend, this could give FRT a 1-year return of roughly 12 percent.

Federal Realty may also be able to ride out a potential recession better than many other REITs. Most of Federal’s properties are in relatively high-income suburban areas that are apt to remain stable during turbulent economic times. While inflation and job losses can still affect the high earners that make up most of Federal’s tenant base, they will likely be less exposed than those living on lower incomes.

Due to this fact, Federal is also likely the best of these stocks on a short-term basis in terms of its ratio of risk to reward. With slightly less potential for downside and a bit more potential upside, Federal Realty Investment Trust could be a solid winner for income-oriented investors in 2023.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.