If you’re an income investor, you should welcome the opportunity to buy some discounted dividend stocks in today’s stock market. Although July was a better month for the markets, the S&P 500 remains down 13% this year. And some stocks are down much more than that. Good dividend-paying stocks, however, can provide a buffer.
Three of the best dividend stocks to buy this month are Medical Properties Trust (MPW -0.37%), TC Energy (TRP -1.35%), and Western Union (WU -5.58%).
1. Medical Properties Trust
A 6.7% dividend yield might seem too good to be true given that the S&P 500 averages a yield of just 1.6%. However, this healthcare-focused real estate investment trust (REIT) has generally been a stable dividend stock to own. Outside of the early stages of the pandemic, Medical Properties has brought in more than enough free cash flow to support its quarterly dividend payments. The following chart shows how much free cash it has had left over after paying its dividends:
Fundamental Chart data by YCharts
Now, with hospitals resuming close to normal day-to-day operations, Medical Properties’ portfolio (which is by and large made up of general acute care hospitals and behavioral health facilities) looks stronger and more stable than before. The company also has been a solid growth stock over the years as it has acquired properties to help boost its top and bottom lines. Revenue of $1.5 billion last year was double the $780 million that Medical Properties reported in 2018.
Medical Properties released its second-quarter results this week, which confirmed the safety of the dividend. Revenue of $400 million for the period ending June 30 rose 4.8% year over year. And funds from operations per share of $0.46 also climbed 31% as the REIT benefited from lower income tax expenses this quarter. That’s 59% higher than the $0.29 per share that the stock pays in dividends.
Overall, this is a solid dividend stock to own, and with its shares down 29% this year, it’s an underrated buy as its financials remain solid. At a forward price-to-earnings (P/E) multiple of just nine, it’s also a relatively cheap buy (the S&P averages a multiple of 18).
2. TC Energy
TC Energy is the best-performing stock on this list as its shares have risen 13% this year. The company helps transport and store energy in North America. The bulk of its revenue is generated from its natural gas pipelines.
It’s doing well this year amid the excitement of oil prices surging to levels not seen in several years, but TC Energy is about more than just hopping on the bandwagon; this is a stable stock that can do well even if the price of oil falls. The company has long-term, regulated contracts in its portfolio that give it more stability than others in the industry.
Not only does the stock’s 5.2% dividend yield look impressive today, but management is bullish that it can increase it. The company expects that it will be able to grow comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) by 5% per year until 2026, which it says will fuel dividend growth. Over the past 20-plus years, TC Energy has increased its dividend payments by an average compounded annual growth rate of 7%.
This is a great dividend stock to buy right now that will give you some safe exposure to the oil and gas industry. At 16 times forward P/E, it also offers some good value; it’s cheaper than pipeline company Enbridge, which trades at 19 times future profits.
3. Western Union
Financial services stock Western Union rounds out this list with a 5.5% yield. It has done better than the S&P 500 this year, falling a modest 5% thus far. However, the stock has been relatively undervalued, trading at a forward P/E of less than 10.
The company, which is known for its cross-border transfers, is facing some challenges this year. It suspended operations in Russia and Belarus due to the war in Ukraine, and a possible downturn in the global economy could put a damper on its growth prospects if consumers have less disposable income. This year, it projects revenue to decline between 9% and 11%. The positive is that even with this adversity, Western Union projects that its per-share profit will be between $2.13 and $2.23 for the full year — far above its dividend, which on an annual basis, pays $0.94 per share.
Western Union’s low payout ratio puts it in a good position to weather the storm this year. While the company faces a tough year in 2022, dividend investors don’t have any reason to worry about the payout. And it should be even less of a concern in the long term when some of the macroeconomic issues will likely improve. With strong financials to support its dividend, Western Union could be an underrated stock to invest in today.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
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