If you like dividends, you'll probably love owning a company that has paid a dividend every single year since 1833. Bank of Nova Scotia(NYSE: BNS) can make that claim. Or how about a company that has trademarked the nickname "The Monthly Dividend Company"? That is exactly what Realty Income(NYSE: O) has done. Here's why these are two no-brainer, high-yield stocks to buy today if you have $1,000 (or more) to invest.
Bank of Nova Scotia is working on the problem
To get the bad news out first, Bank of Nova Scotia, often just called Scotiabank, has been lagging behind its banking peers on key industry metrics, like earnings-per-share growth, non-interest income growth, and return on equity. That's not good, but management is working on the problem. Specifically, it is shifting its business toward its best markets and away from weaker ones.
Image source: Getty Images.
This won't be a quick fix, as the overhaul will require some time to work through. But investor worries about the laggard performance have resulted in Bank of Nova Scotia's dividend yield rising to a huge 6.5%, well above the bank average of around 2.5%. You will be paid very well to wait for Scotiabank to revamp its business.
But there's one more important factor here. Bank of Nova Scotia is a Canadian bank. Canadian banking regulations are very strict. The rules basically protect the country's largest players from competition. Scotiabank is one of the largest banks in the country, so it has an entrenched industry position at the foundation of its business.
The real problem is the company's growth effort in South America, which hasn't worked out as well as hoped. That is where the big changes are being made, but since the bank's foundation remains strong, the risk here probably isn't as large as it may at first seem. For long-term income investors, the risk/reward trade-off seems tilted in a favorable direction.
Realty Income is boring, and that is good
Realty Income is the largest net lease real estate investment trust (REIT) by a wide margin. (Net leases require tenants to pay most property-level operating costs.) In fact, with a $50 billion market cap, it is roughly four times the size of its next-closest peer. This provides Realty Income with valuable advantages.
For starters, Realty Income is so big that it can take on transactions that would simply be too large for smaller net lease REITs to handle. That includes acting as an industry consolidator, noting that the company has acquired two smaller REITs over the past decade. But there's more because being so large gives this investment-grade-rated REIT greater access to the capital markets. And that, in turn, generally provides it with a very low cost of capital. Thus, it can also make profitable deals where competitors with higher costs can't.
All in all, Realty Income has a strong industry position to support its attractive 5.2% dividend yield. The payout been increased every year for nearly three decades. There are higher-yielding REITs you can buy, but few can match Realty Income's consistency, and none of its peers can match its scale. Simply put, if you like to own the biggest and best, Realty Income is the high-yield net lease REIT you'll want to buy.
Two easy-to-love dividend stocks
Although Scotiabank comes with some warts, the high-yield bank remains a very well-positioned player in the banking sector. It seems highly likely to muddle through its turnaround effort while continuing to reward investors well. Realty Income, meanwhile, offers an attractive yield and a sector-leading business. Even the most conservative investors will likely find the rather boring REIT appealing.
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Reuben Gregg Brewer has positions in Bank Of Nova Scotia and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.
