Dividend stocks are back in fashion at the moment. Higher interest rates are causing investors to favour companies that are able to pay out cash to shareholders right away.
In general, I like to try and invest in companies when everyone else is looking the other way. But there are three dividend stocks that I’m looking to buy in December.
First on my list is Realty Income (NYSE:O). I bought this stock in November, I’ll be buying it in December, and I expect to buy it in January, too.
The company is a real estate investment trust (REIT) that pays its dividends monthly. Right now, the stock has a dividend yield of just over 4.5%.
I think that Realty Income could be a great stock for me to own in a recession. As corporate earnings fall, a steady stream of rental income seems attractive to me.
There’s a chance that higher interest rates will bring down property prices, which is a risk to the company’s portfolio. But I think that this could actually be a good thing.
With REITs, the main obstacle is usually growth. And Realty Income’s size makes this especially challenging.
Lower property prices might help here, though. The company has a decent credit rating and this should help it to take advantage of cheaper growth opportunities.
I’m also looking at adding to my investment in Kraft Heinz (NASDAQ:KHC). The share price is up by 11% over the past 12 months, but I still think there’s an excellent opportunity here for me.
The stock looks expensive and it looks risky. Right now, the company trades at a price-to-earnings (P/E) ratio of just under 40.
I think that this is less risky than it looks, though. The company’s net income is the result of subtracting a non-cash charge of $2.2bn asset impairment charge.
As a result, the company’s earnings don’t reflect the cash the underlying business is generating. The stock trades at just over 13 times the free cash it generates.
I therefore think that Kraft Heinz shares aren’t as expensive as they look. I see this as an opportunity to buy a steady, predictable business at a decent price.
Last on my list of dividend stocks to buy in December is Citigroup (NYSE:C). This is one of the largest holdings in my portfolio and I’m planning to increase my stake in December.
As with the others, the current dividend yield on Citigroup shares is over 4%. That’s following a decline of over 25% in the share price over the last year.
The company has a significant amount of consumer debt on its balance sheets. Rising interest rates increases the possibility of loan defaults, which is a risk for this business.
Nonetheless, I think that the share are a bargain. Right now, the stock trades at a price-to-book (P/B) ratio of just over 0.5.
That means that the company is still likely to be worth more than its current share price implies even if some of its loans don’t get repaid. And that’s the main reason I’ll be buying the stock in December.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in Citigroup, Realty Income, and The Kraft Heinz Company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.